Green,
It is in part due to Bubble-Mania of shale gas drilling. Just look at ng rig count (~900) even after 12 month ng strip is below $5 (while oil over $100, go figure).
We already have a substantial ng over-production with almost no lng import. Gas storage is historically high even after a very cold winter (and a hot summer before that). By the way, this winter's extra cold was double whammy for ng storage, as it shut down (froze) the ng production in the south.
Given all these negatives on ng, there is a backlog of 3000+ wells of ng wells waiting completion, with a 3-6 months flush production capacity of 1+TCF. (No link for 3000 number, but just in Haynesville, the backlog is 500, see link below).
This 3000 completion backlog is roughly 400 rigs working for a year. Basically 400 rigs worked the last 12 months just to add the well backlog, but not to the ng production yet.
If we cut ng rig count by 400 for a year, it will not have a dent on ng production. It will just clear the 3000 well backlog. On top that, we already have significant ng over-production. This means ng rig count can go to "0" to get supply/demand in balance.
If we get a normal summer this year, wait ng to crush below $3 and ng rig count fall off the cliff. Then you will get your 30% correction.
By the way, the so-called switching to oil drilling (hyped by CHK etc) is indeed nothing but ng drilling with liquid rich wells. These "oily" wells still produces significant ng.
Rig count:
investorvillage.com
Haynesville:
investorvillage.com |
