Natural Gas Revisited

It seems like the question I get asked more than any other one is “What are the prospects for natural gas?”

I wrote a post in September, 2008, saying that it looked like there was a reasonable chance natural gas production could be ramped up. I still think that is true. In fact, through March 2009, US natural gas production is up, although it is not rising as rapidly as in 2008. The dips in production in September 2005 and September 2008 are from drops in production due to hurricanes.

What has happened since September 2008 is a serious drop in prices, because demand did not rise to match the new higher production. Such a drop in prices makes the price too low for nearly all producers.

At this point, natural gas prices are back at 2002 levels. This is too low a level to be profitable, and natural gas producers have reduced the number of drilling rigs by more than half since September 2008. With fewer drilling rigs, natural gas production can be expected to decline in the not too distant future, perhaps late 2009 or sometime in 2010.

The Oil Drum