Breaking through another psychological barrier, US natural gas prices fell to $2.99/thousand cubic feet in futures trading this morning. That’s the lowest price in more than two years and light years away from highs of around $14/thousand cubic feet in 2005 and nearly $12/thousand cubic feet in 2008.
The explosion in shale gas production is the reason for the decline, and it now appears that drillers are cutting back, with rig counts down -12% in 2011. But there are still more than 800 rigs going after natural gas and until that number drops even further, prices will remain low.
Working against a drop in the rig count are lease terms that require producers to develop the lease quickly or lose the rights. Producers are caught between the rock of low prices and the hard place of having to drill to maintain their right to the gas. Look for prices to remain low throughout next year.
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