Low natural gas prices won’t stop drilling

On February 22, 2012 — No comments

Even as Wall Street analysts continue to ratchet down their 2012 forecasts for already record low wellhead prices, Fayetteville Shale producers don’t appear ready to completely halt cash-rich drilling plans in the Arkansas natural gas play – as least not yet.

“Lower gas prices will result in lower drilling activity, but not as much as many hope since most companies have drilling obligations,” said Fadel Gheit, managing director and senior energy analyst at New York-based Oppenheimer & Co.

Unlike in the past, when independent drillers literally shut down rig operations after gas prices dropped below so-called breakeven levels, producers can still make a profit in today’s low-price environment by continuing to drill.

According to the U.S. Energy Department, the glut of natural gas production and a mild winter have pushed spot prices to their lowest level in more than a decade. Natural gas working inventories continue to set new record seasonal highs and ended January 2012 at an estimated 2.86 trillion cubic feet (Tcf), about 24% above the same time last year, said the department’s Energy Information Administration (EIA).

“An exceptionally mild winter to date has pressured U.S. natural gas prices to levels below our prior expectations and below levels that are economically attractive for developing dry gas plays in the U.S., shale or otherwise,” the EIA said in its recent short-term forecast for 2012.

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