Wednesday, June 13, 2012

Despite Big Gas Drilling Reduction, Gas Production Averages 3.4% Above 2011 Level

Why are gas prices well below $2.50 and falling further of late?  Do such prices make any sense, when the gas drilling rig count has fallen nationally from 936 in mid-October 2011 to 588 as of June 1, 2012?  Surely such a big reduction in gas drilling would have cut supply significantly more than 7 months into the drilling cuts and raised prices.

Actually not.  According to the EIA, 2012 gas production is 3.4% above 2011 levels or up the equivalent of 2.3 billion cubic feet per day, despite the approximately 35% decrease in gas drilling rigs.

Look no further than the jump in oil drilling rigs operating for an explanation of how gas production in 2012 to date has exceeded 2011 levels.  Rigs drilling for oil have jumped from 777 to 1386 from early 2011 to June 1, 2012.  That is a huge amount of drilling.

Not surprisingly, given all the rigs drilling for oil, oil production is surging and often has a bonus too. A lot of "associated gas" is being produced with the new oil production and is one reason why natural gas supply remains high, despite the sharp gas drilling rig count decreases.

All this adds up to exceptionally low gas-prices for the remainder of this year, unless a scorching summer envelops the nation.  That means natural gas will continue to displace large amounts of coal in electricity generation in the coming months and that consumers will enjoy further big savings on their gas and electricity bills in many markets.

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