Like a bad penny, Art shows up from time to time. I am impressed that he continues to get space in mainstream energy media. I think that says something about the mind set of editors.
dbob, I'm a little concerned about the increase in oil directed rigs and the volume of associated gas that may be adding to supply. For the first time in a long time the Haynesville focused operators have all added rigs and their alternate unit applications and new permits foretell a significant bump in Haynesville supply. I suspect the same thing is happening in the other natural gas basins.
Hi Skip - neophyte here....help me understand: more oil rigs mean more associated natural gas coming along with them, which will add to the supply? So even if H'ville operators are not specifically drilling for gas, the increased oil drilling will add more gas to our supplies anyway? This will keep nat gas prices low and not be supportive for drilling for gas in the H'ville? thanks!
Hi, Timber Gal. Most oil wells also produce some natural gas but in much lower quantities than dry gas or wet gas wells. The major unconventional basins that are seeing an increase in rigs and production are driven by the price of crude, not by the price of natural gas. Even though each individual oil well only produces a relatively low volume of natural gas, it adds to the supply which caps or drives down the price of natural gas. That "associated" gas from oil wells is sold as a "by product" which means it can be sold cheap and still contribute to the well operator's bottom line. The majority of the rigs added in the last three months were deployed to a handful of oil plays. There has been a modest increase in rigs drilling for gas. There is a lot of new oil supply on the way and along with it will come some significant volumes of associated gas.
Winter being over in many areas of the country will not assist in boosting demand, and storage being a notable percentage above the five-year average will certainly lend no price support.
Many operators have announced hedging programs for 2017 production in the $3 range so even if the monthly settlement price of natural gas drops, they can continue drilling at a guaranteed return. Crude in the $50 to $55 range will maintain drilling in liquid prone basins and add a lot of associated gas that is basically sold as a by product. I don't see natural gas prices averaging over $3 for 2017.