CERA: High Rig Costs, Tight Labor Markets to Support Gas Prices

Rising rig costs and a tight pool of qualified labor are likely to support natural gas prices over the next two years, according to Michael Zenker, head of global gas for Cambridge Energy Research Associates.

“Rig rates climbed 30% per year in 2003, 2004 and 2005,” Zenker said in an interview at CERA’s annual energy conference here.


Zenker predicts an average Henry Hub spot price, the benchmark off which U.S. domestic gas prices are priced, of $6.56 a million British thermal units in 2007 and $6.32 MMBtu in 2008 as imports of liquefied natural gas increase. These prices were derived, in part, from an average price of $6.83 per thousand cubic feet in 2005 that Zenker said he calculated by figuring out the production costs and returns of about 48,000 wells.

Higher gas prices have enabled companies to drill marginal gas wells, Zenker said, something which has been especially important as the U.S. saw a record number of wells drilled while production remained flat.

Dow Jones Newswires