Over the Cliff for Natural Gas in North America?

Is natural gas production in North America headed for cliff? No one can know for sure; but all signs point down.

The recent crash in North American natural gas prices has been welcome news for industrial, commercial and residential gas consumers. The reason behind the decline in prices, however, is not so welcome, namely, an economy fallen into a deep and still developing recession, one that some believe will ultimately fit the frightening, but rather vague definition of an economic depression.

But there is reason for North American natural gas consumers to fear the bargain basement prices they are now getting. For the time being, demand is plummeting while supply remains more than ample. New supply is still streaming in due to increased drilling activity in the wake of the fantastic runup in natural gas prices last year to around $14 per thousand cubic feet. But today’s low price of around $4.75 is causing drillers increasingly to lay down their drills and await higher prices. Just last year at this time combined natural gas rig counts for Canada and the United States were 1,753 for the week ending January 18, 2008. Today, the comparable count is 1,472, a decline of 16 percent.


We can expect more declines in rig count as long as the low prices persist since many of the largest drillers have already announced plans to reduce drilling sharply this year. In addition, since natural gas is often found in association with oil, the decline in oil drilling will affect natural gas supplies to a certain degree. Perhaps of most concern is that yearly decline rates for existing natural gas wells are now running at an aggregate 30 percent for North America. That means that if all drilling ceased for natural gas, production in a year would be down to 70 percent of today’s total. Production would decline below 25 percent of today’s level if this moratorium went on for four years.

Scitizen