News / Business
Outcome of Current Drilling Rig Decline is Very Different From History
Drilling efficiencies, increased productivity, and falling costs could create a new price environment for natural gas for the next several years.
According to Baker Hughes the natural gas drilling rig count has fallen from a peak of 1,606 drilling rigs in September 2008 to just 685 as of June 11, 2009. This is a dramatic decline that historically would be accompanied by an evident decline in natural gas production. But, that hasn’t been the case this time.
“The number of drilling rigs needed to maintain production has fallen,” says Valerie Wood, President of Energy Solutions, Inc. “Drilling efficiencies have improved, well productivity has increased, and costs have come down. As a result, fewer rigs will be needed to maintain necessary production levels for the U.S.,” says Wood. “Horizontal-drilling technology has changed the footprint for drilling in the U.S. With falling prices, producers have moved rigs to lower-cost, more efficient shale production regions. This is an option that didn’t exist during the last drilling downturn in 2001-2001.”
According to Baker Hughes, in September 2008, horizontal drilling rigs accounted for 31.4% of all operating natural gas and crude oil rigs and vertical drilling rigs accounted for 49% of all operating natural gas and crude oil rigs. By comparison, as of June 11, 2009, horizontal drilling rigs now account for 43.5% of all operating natural gas and crude oil rigs and vertical drilling rigs account for just 37.8% of all operating rigs.
“Because production data can lag by as much as six months, it is very possible that production declines are greater than many realize and that fact is being masked by weaker industrial demand,” says Wood. “We do expect natural gas prices to rally as industrial demand returns, but the lower costs of shale production could still correlate into a lower-priced environment for natural gas in comparison to the past several years.”
Additional details on how changes in drilling may affect natural gas prices are highlighted in the June 2009 edition of The Advisor, a multi-faceted publication that keeps natural gas buyers up-to-date with market-changing events. Request your copy of the June 2009 edition by sending your request to june-request@energysolutionsinc.com or call (608) 848-9589.
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About Energy Solutions, Inc.
Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 25 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.
