2008-07-23 / Front Page

Gas production heading toward best year in Ky.

Fueled by high demand and concerns about supply worldwide, Kentucky is on track to have its first $1 billion year in oil and natural gas production.

William G. Barr III, vice president of NGAS Resources Inc. and president of the Kentucky Oil and Gas Association, said in an interview with the Lane Report that high prices have made it profitable for Kentucky companies to go after gas and oil reserves in the soil.

"It's a good time to be in the business because of the opportunities both from use of increased technology to lower finding costs with horizontal drilling and the opportunities from exploration," Barr said. Kentucky's industry, made up of many small companies and a few large ones, still faces challenges, however. About half the nation's oil and gas workforce is nearing retirement age, so finding enough petroleum engineers, diesel mechanics and other skilled positions to sustain the industry's growth could be a problem. Rising costs for steel pipe and diesel fuel to run equipment also are taking a bite out of rising revenues.

Still, production appears likely to set records, The Lane Report noted. And while the contribution Kentucky's oil and gas production make to America's overall energy picture pales beside that of the coal industry, it's still significant. In the past few years, Kentucky's oil production has reversed a decades-long downturn. The state's oil production peaked in 1959, when 27 million barrels of oil flowed. Production followed the market's ups and downs, but by 2006, output was down to 2.2 million barrels a year. In 2007, it spiked up to 2.6 million barrels and 2008 is expected to show another increase, according to Brandon Nuttall, a geologist with the Kentucky Geological Survey.

In 2006, the latest figures available from the Kentucky Geological Survey, Henderson County was the top oil producer with 316,000 barrels. Pike County was the top natural gas producer with more than 32 billion cubic feet. Overall, the U.S. Energy Information Administration estimates Kentucky had about 18,000 oil wells or about 3.5 percent of the nation's total in 2006. Gas wells, about 16,000 of them, account for a similar percentage of the nation's capacity. The majority are "stripper" wells, small wells that produce less than 10 barrels of oil or 60,000 cubic feet of gas per day. That's in contrast to a well in Saudi Arabia that might produce more than 1,000 barrels of oil per day. Kentucky's natural gas production, most of which comes from the Big Sandy field in eastern Kentucky, typically accounts for less than 1 percent of the total annual U.S. natural gas output.

Alternative fuel also plays a role in Kentucky's energy story, The Lane Report said. Alltech's plans to build a refinery to convert biomass into ethanol in Washington County continue to move forward. Alltech president and founder Dr. Pearse Lyons said an engineering firm has been selected to develop the refinery near an Alltech plant in Springfield.

The report appears in The Lane Report's July issue.

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