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Bentek recently released some interesting data points which, I believe, illustrates one of the pivotal issues to take into consideration when forecasting natural gas prices. Specifically, the difference in IRR between wet and dry plays. As you can see in the below graph based on data from the EIA, dry production averages between 75%-80% of total gas withdrawals.

(click to enlarge)

With current Henry Hub prices ranging around the $4/MMBtu mark, dry producers are still not in the money which, according to Bentek, would require prices in the range of $4.50-$5/MMBtu. On the other hand, wet producers are able to attain 30-40% IRR at prices between $3-$4/MMBtu. The result is what you see below in this (albeit, somewhat dated) chart, which depicts the rise/decline of rig counts by wet and dry:

(click to enlarge)

As you can see, at the time there was, understandably, no growth in rig counts in dry-gas focused areas. However, the number of rig increases for liquid-rich areas was booming. This creates a conundrum for major dry producers such as Chesapeake Energy (NYSE:CHK), CONSOL Energy (NYSE:CNX), WPX Energy (NYSE:WPX), and Encana (NYSE:ECA). Producers with major dry assets can't completely shut down their production as they would be shutting down a good chunk of their cash flow. Meanwhile, with 30-40% IRR's, wet producers such as Exxon (NYSE:XOM) have little incentive to curtail production; thus maintaining high levels of supply, which will continue to weigh on prices.

Source: Natural Gas Price Forecasts