Shale Market Opportunity Snapshot: Mountain / Northern Great Plains
Challenges and opportunities in the Bakken, Three Forks and Niobrara shale plays
This article is part of a series from NAHAD examining opportunities and challenges in shale oil and gas markets. This article provides a snapshot of the Mountain / Northern Great Plains region.
The Bakken formation, in the Williston Basin, covers a large part of North Dakota and the northeastern corner of Montana as well as parts of Canada. While a 2008 assessment by the U.S. Geological Society had deemed much of Bakken’s oil to be unrecoverable, an updated assessment in April more than doubled the previous calculation, estimating that the Bakken and underlying Three Forks formations contain a mean of 7.4 billion barrels of undiscovered, technically recoverable oil.
Another contributor of high production rates in the region, the Niobrara play covers parts of Colorado and Wyoming. Like in North Dakota and Montana, developing extraction technology that combines horizontal drilling and hydraulic fracturing has enabled the extraction of reserves previously thought unrecoverable.
Some of the greatest shale-driven opportunities in the region may be found in the following states, ranked from the largest to smallest natural gas gross withdrawals and production from shale gas wells. The 2011 production data are from the Energy Information Administration.
The Niobrara shale in Colorado contributes to dry natural gas reserve estimates as high as 24 trillion cubic feet (2011) in the state. From 2007 to 2011, annual natural gas withdrawal and production from shale gas wells there increased 53 percent to 212 billion cubic feet. In the five years leading up to 2011, the number of producing natural gas wells in Colorado increased 46 percent to more than 30,000 wells.
Georg Eger, senior vice president and principal for Reliance Industrial Products Ltd.'s U.S. and Canada operations, says while the Colorado cities of Rifle and Grand Junction were once activity hotbeds for gas well drilling, opportunities today are scattered throughout the northern, southern and central parts of the state. While many locations are remote, Eger says Reliance uses a rig locator tool and three-quarters- to one-ton trucks to reach them.
Natural gas withdrawals and production from shale gas wells in North Dakota was estimated at 115 billion cubic feet in 2011, 16 times the amount produced there in 2007. In June, North Dakota’s daily production reached 821,531 barrels, a 24 percent increase from June 2012, according to the North Dakota Department of Mineral Resources. 2011 estimates from the EIA suggest the state has 1.7 trillion cubic feet of dry natural gas reserves.
New Mexico’s marketed production of natural gas accounted for 5.3 percent of U.S. marketed natural gas production in 2011. Gross withdrawals and production from shale gas wells increased 72 percent from 2007 to 2011, to 93 billion cubic feet, and 2011 EIA estimates place dry natural gas reserves in the state at around 15 trillion cubic feet.
Shale gas wells in Montana withdrew/produced 13 billion cubic feet of natural gas in 2011, despite a 10 percent drop in production from to 2007 levels. The state had 6,477 producing natural gas wells as of 2011.
High-growth areas in the region have encountered supply challenges, according to several respondents to NAHAD’s Shale and Fracking Survey. One distributor operating in the area said keeping up with demand is often difficult, and a manufacturer there said obtaining product is a challenge. Several other distributors and importers listed warehouse space as a challenge.
In North Dakota, rapid growth and distributors’ and manufacturers' desire to capitalize on it has created its own set of problems. According to one supplier serving the market there, competition among distributors in North Dakota is fierce. “It’s dog-eat-dog over there,” he says. The lack of infrastructure in the state is also an issue, he says; there are too few workers in the state to support the industry, and a lack of housing exacerbates the problem.
Eger at Reliance Industrial Products says a lack of adequate real estate has limited the company's stocking abilities in Williston, ND, since Reliance built a location there two years ago, but the company is now doubling its warehouse space and expanding its industrial lines. “We’re ultimately trying to find everything that the end-user wants that we can put on our shelves so that we don’t have to tell them ‘no,’ because in our realm of industry, that word doesn’t exist.”
The lack of infrastructure in North Dakota can also create site delivery challenges. Allen J. Munro, president of Munro Companies Inc. in Grand Junction, CO, says shipping truckload quantities into the state is generally straightforward, but companies that ship smaller quantities frequently encounter problems. “For truckload quantities, the truck line has the ability to spot the trailer at the customer’s location for them to unload and distribute the products on their time table,” he says. “When a shipment is shipped LTL, the truck line needs a drop-off point that is fast and easy.” But according to Munro, easy drop points are hard to find in the state. This means it can take five or six days to coordinate an LTL delivery in addition to standard shipping time.
According to several respondents to NAHAD’s recent survey, drilling and fracking regulations in some states in the Mountain / Northern Great Plains region have also limited opportunity in some areas.
In Colorado last November, Longmont voters were the first in the state to pass a city-wide resolution to ban hydraulic fracturing, and similar resolutions have passed in Boulder County and in the cities of Boulder, Colorado Springs, Erie, Fort Collins and Loveland. In January, the Protect Our Colorado coalition was formed with the goal of convincing state legislators to ban fracking at the state level.
Eger says the effect of local anti-fracking sentiment and restrictions in the state has been tremendous. "In fact, I would say we probably dropped 30 percent when that whole groundwater issue started to come up.” Eger says because Reliance's primary market is oil and gas, a statewide fracking ban would have a tremendous impact if passed.
Although Wyoming boasts some of the largest natural gas reserves in the region, natural gas withdrawals and production from shale wells there in 2011 was 98 percent less than what neighboring state Colorado produced the same year. In 2010, the Wyoming Oil and Gas Conservation Commission had voted to require full disclosure of the hydraulic fracturing fluids used in natural gas exploration. By the end of 2011, annual natural gas production/withdrawal from shale wells had dropped 16 percent from 2010 levels following three consecutive years of increases.
Local fracking moratoriums and restrictions have also been passed in New Mexico, in San Miguel and Mora counties and in the city of Las Vegas.