US Natural Gas Prices: "The Fix is Underway"

“The fix is underway” says Chesapeake Energy in their April Investor Presentation. What they mean is that natural gas prices are going back up this winter. The number of rigs drilling for natural gas is going down. Fewer rigs means fewer new wells and eventually less natural gas and higher prices for consumers. This is the third article investigating the possibility of a spike in natural gas prices during early 2010. In this article we look at the scenarios Chesapeake has created based on the how low the drilling rig count goes (shown in Figure 1). And we dig a bit into the other factors that could increase or decrease demand for natural gas.

The Spike-Dip-Spike Pattern

The last 10 years have shown a repeating pattern of natural gas price spikes and dips (covered in more detail in Anatomy of a Natural Gas Price Spike). The reason for this repeating cycle is that price dips cause reductions in the number of wells drilled. Those reductions cut the flow of natural gas until a shortage develops. Prices then spike as consumers compete for too little natural gas.

The Oil Drum