U.S. Natural Gas Rig Count at Seven Year Low

Baker Hughes (BHI) put out its rig count again last week, and I'm just updating with the data. The natural gas count slipped to 7-year lows, as producers continue to shut off supply (data via Reuters).

• The number of rigs drilling for natural gas in the United States fell 7 this week to 665, the lowest level in more than seven years, according to a report on Friday by oil services firm Baker Hughes in Houston.

• U.S. natural gas drilling rigs have been in a mostly steady decline since peaking above 1,600 in September, and now stand at 869 rigs, or 57 percent, below the same week last year. It is the lowest natural gas rig count since May 3, 2002, when there were 640 rigs operating.

• Tighter access to credit and a 70 percent slide in natural gas prices to about $3.50 per mmBtu after peaking above $13 last July have forced many producers to scale back drilling operations. But with the natural gas drilling rig count now firmly entrenched below 700, and monthly production down four straight months through June, some analysts expect to see the supply-demand balance tighten soon.

The bulls on natural gas have said eventually all this shutting off of supply will balance out with demand, and push gas prices higher. Prices have bounced slightly off their lows of the previous week or two, but still remain depressed.

Here is a link to the full report from Baker Hughes (pdf).

Disclosure: Long UNG.

Comments

[GMiki1:]

Well, it has been cool in the Northeast, which means less use of AC. There's still an oversupply of nat gas. I am long UNG, however, and liking it. But low and sell high.

Jul 21 07:12 PM

[JuniorEnerg...:]

Instead of the overall gas focused rig count, I would encourage you to break down decline of vertical rigs vs. decline of horizontal rigs. One 15 million per day horizontal Barnett completion = 150 100 thousand per day Oriskany vertical completions.

The decline in rig count might not have near the impact on the amount of new gas coming on-line as some people imply.

Jul 22 08:12 AM

[erewhonman:]

I'm with JuniorEnergy on this one. Each rig is developing much more gas production than seven years back. Another number, when considering production declines, is: Of the decline in production, how much is shut in (just waiting for a price stimulus to flood back into the market) and how much is decline in production capacity?

Jul 22 01:13 PM

[crankyyankee:]

Rigs drilling for NatGas still 72% of total rigs operating, so the domestic USA play is Gas!Gas!Gas! Capped wells also offer quick way to increase gas production when price pops back to $5-$6/MMBTU. NatGas still a domestic product with little current import competition IMO.

Jul 22 01:29 PM

[Indian:]

I have royalty rights with XTO (Barnett Shell) Fact is they might be drilling but they could be capping the well to cut supplies at the same time. I got notice of one well closing in our pool. I am sure they are not going to bring gas out of ground at this very low price. Instaed they still could be drilling because of cheaper rig rates and labor.

On Jul 22 08:12 AM JuniorEnergyFund wrote:

> Instead of the overall gas focused rig count, I would encourage you
> to break down decline of vertical rigs vs. decline of horizontal
> rigs. One 15 million per day horizontal Barnett completion = 150
> 100 thousand per day Oriskany vertical completions.
>
> The decline in rig count might not have near the impact on the amount
> of new gas coming on-line as some people imply.

Jul 22 06:14 PM

[Indian:]

I am royalty holder with XTO in barnet shell. I have got notice of one well capped out of two we have in the pool. So producer are reacting to lower price. They are still drill ing because rigs rate are low and labor is cheap. This increases reserve so they will cash in as supply tightens. All producers are sitting on pile of cash due to highr gas prices last three years. I am long LNG I have heard lots of contraversy for its role, but as I see they pretty much move with the spot price of natural gas.

Jul 22 06:22 PM

[one eye:]

Jason Gammell, Courtney Article, 25-30% decline in NG production by 4th quarter.

Jul 23 12:33 AM

[JuniorEnerg...:]

Interesting.....

Mr. Gammell must have changed his tune since his July 16 Bloomberg interview.

Gammel told Bloomberg that there are "huge inventories of NG and Liquid Natural Gas (LNG)". With the weak demand for NG he already sees drilling declining and he said that the "rig count" is way down from last year at this time. His theory is that by the 2nd quarter of next year that will begin to reverse the supply situation and that shortages of NG will ensue.

In the next 4 to 6 months, Gammel thought there was a high probability that NG prices could fall into the "$2s", which would cause more drilling rigs to shut down and perhaps cause a marked slow-down in production. He said that even if there was a major hurricane in the Gulf of Mexico this year he still felt that we will continue to see a huge glut in NG supplies.

This will be helpful to the economies of the world during this time of worldwide recessions, but it will also set the stage for a "big reversal in the price of NG" in 2010 and 2011. In fact, Gammel predicts that the price of NG will soar up to "the $8s" next year from the lows that we will experience later this summer and fall.

Jul 23 07:55 AM

[SamuelB:]

Besides the wells that might be capped and easily brought back into operation, how long does it take (on average) to drill a new well?

Also, what's the rate at which wellls run try -

Anyone have any good articles or sources on this?

Thanks

Jul 23 08:59 AM

[dieuwer:]

Gas rig output decreases about 50% after one year. After two years it is down to 25%. After three years 12.5%. This means that on average, NEW fields and rigs must be found and build to replace current supply every three years. With the current ultra-low natural gas prices, NO new supply will be build. In three years from now we will have MASSIVE shortages.

Jul 23 01:52 PM

[dieuwer:]

See Figure 2: news.goldseek.com/Gold...

Jul 23 01:57 PM