Gas Petrospective – September 27, 2010

Natural gas prices dropped nearly 14 cents per million Btu on Friday, as traders reacted to a new storm track for Tropical Storm Matthew. Late last week, meteorologists had been concerned that Matthew could track northwards towards the production-rich centers of the US Gulf below Texas and Louisiana. But, as the week ended, it became less and less likely that the tropical storm, which formed suddenly in the Caribbean, was going to threaten any production areas. As it was, the storm made landfall in Nicaragua late on Friday, well away from the US Gulf.

Also, on Friday afternoon, Baker-Hughes reported that there were 15 fewer rigs in service, dropping the total to 967. This suggested to some observers that recent low prices may have had an impact on drilling intentions. The exploitation of shale-gas formations has dramatically changed the economics of drilling for gas in 2010, but it may be that drillers are not as eager to develop fields when gas prices fall below $4.00/mmBtu.

Despite the decline, we still have 37% more rigs in service now than we had a year ago. EIA underground storage figures are now 175 bcf or 4.98% lower than a year ago. They are 195 bcf and 6.20% above the five-year average. Five weeks ago, the year-to-year deficit was 185 bcf (-5.79%) and the surplus against the five-year average was 196 bcf (6.96%). The year-to-year deficit grew significantly over the summer, at the same that the surplus against the five-year average dropped significantly. But, over the last few weeks, the numbers have stagnated with little change over the last few weeks.

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