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My current feeling is that very low Nat gas prices are increasing use of this valuable fuel for all sorts of things lead mostly by base load power production but including such things as running the drilling rigs, future LNG exports and where available powering transportation. Eventually the demand will catch up with the copious supply?


Drilling slowdown deepens as natural gas glut persists

Carrie Tait, The Globe and Mail
7:26 AM, E.T. | December 31, 2012
Energy & Resources
Tags: Baker Hughes, Encana, Natural Gas

The number of drilling rigs at work in North America's energy sector is falling - led by a steep drop in natural gas wells - and is headed for a further decline in 2013.

At the same time, the economics of hydraulic fracturing have slammed into reverse, with demand plummeting and capacity rising, pointing to growing cost pressures for oil field services firms, and to cost relief for producers.

The natural gas market has been under pressure from a long-lasting glut, with inventory levels in the United States hovering well above five-year averages. In previous cycles, prices would typically rebound as companies pulled back on production, leading to a draw down on inventories and, eventually, tighter supplies.

That dynamic no longer holds true. Energy companies have once again shifted away from natural gas production, but still face a supply problem perpetuated by their new strategy. Although gas prices are in the basement, oil prices remain relatively buoyant, with the number of rigs drilling for oil rising over the last year, in contrast to the marked decline in natural-gas rigs. Energy firms are also focusing on so-called liquids-rich natural gas plays, which produce more valuable products like condensate, butane, and propane.

However, production companies still take natural gas out of the ground when they extract these pricier commodities.

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Fracing technology makes thousands of square miles look attractive for drilling. Drilling costs remain high.

When NG pricing weakens (due to excess supply), drilling investment slows--maybe to a stop. But as markets are found to monetize the gas, investors are willing to take the risk.

Some of those attractive areas ultimately may produce dry holes. Until the limits are known, new discoveries are likely as soon as the market will make them pay.
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Back in October, some guy writing at Forbes predicted $8 gas by this winter.

I guess we didn't get there.

- Pete
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Some of those attractive areas ultimately may produce dry holes.

3D sesismic technology has reduced dry holes rather dramatically though certainly not eliminated. I know of Nat gas companies in productive areas that expect and usually get 100% successful wells.

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