Baker Hughes reported today that the number of active natural gas rigs is now half the peak level hit last September. That’s right – in just 6 months US companies have gone from actively trying to increase production (taking advantage of high US natural gas prices above $10 per MMBtu) to not even having the rigs to maintain current production.
The number has dropped from 1,606 in September to 810 as of this week. And many analysts believe rigs will fall another 10+%. This doesn’t mean natural gas production could fall in half – because the number of producing wells is still high. But the rate that producers drill for new wells to compensate for the declining production in older wells has taken a big hit. Within a few months, US natural gas production will probably fall more than 5% and send prices higher than their current levels below $4. The global LNG market will be able to help make up for some lower US production, but may struggle if Canadian natural gas production falls sharply as well.
Again, I don’t see high probability of a big price spike for natural gas this Spring (in fact, they could fall a good bit further and help more utilities replace coal with lower-carbon natural gas). But if the summer is hot and the upcoming winter is cold, natural gas demand could uptick to the falling production level in the medium term.
I’ll keep you updated on this and other developments in the months ahead.
Have a great weekend!
Tags: 2009, Natural Gas, prices, rig count