Natural gas prices not likely to soon push production

Six years of first-quarter growth in U.S. natural gas drilling activity came to an end during the first quarter of 2009, according to The Natural Gas Summary from the American Gas Association.

With natural gas exploration, production and commodity management important to the the Fort Smith regional economy, the April 30 report suggests that the price of natural gas isn’t likely to return to levels that will bring thousands of exploration and production jobs back to Arkansas and the Fort Smith region.

The downward trend in drilling and well completions continues as the total U.S. rig count has slipped below 1,000 for the first time since April 2003. With 975 domestic rigs operating, gas-directed activities represent 760 of the total rigs working today or about 78% of all activity.

With natural gas prices around $3.50 per MMBtu and large amounts of natural gas in storage, most analysts don’t see a sustained surge in production, according to the AGA report.

The AGA does wonder about natural gas and the Congressional debate on the country’s energy policy.

“There are constant reminders of wind and renewable energy opportunities for the future whether the average citizen is reading the paper or listening to the radio on the way to work. However, where is natural gas in the debate?” the AGA noted. “Expanding natural gas in home and business direct-use applications, in transportation and even in power generation would significantly reduce the nation’s carbon footprint. Technologies for producing, delivering and using the fuel efficiently are here today — are here now — with no heroic assumptions necessary. Where is reliable and secure natural gas in the national debate?”

Statistics and information noted in the AGA report include:
• Some commodities technical analysts believe that when natural gas acquisition prices at Henry Hub break through the $3.50 per MMBtu mark they will go to $2.75, then meet a resistance point. 

• At 1,741 Bcf (billion cubic feet) the national working gas inventory remains well above the five-year average and last year’s pace. For the week ending April 17, 2009, working
gas is 35.8% above the volume from one year ago and 22.7% higher than the five-
year average.
  
• Some natural gas producers have indicated production shut-ins due to falling prices and many have announced drilling budget reductions, which have been validated by the drop in rig activity since last summer.

• Yet, natural gas production prior to extraction losses in the United States remains strong compared to recent history, according to Bentek Energy. Domestic production averaged about 56.2 Bcf per day for the first three weeks of April compared to 55.6 Bcf per day for all of March 2009. Apparently, market observers and players will have to wait a little longer to see reductions in domestic production as a result of the current economic downturn.