The recent dramatic fall in energy prices, from their crest in July of 2008
to their current levels has had a remarkable impact on drilling.
Information released last week by Baker Hughes, a major oilfield service company that tracks drilling activity around the world, shows that the North American rig count paints a grim picture of activity out in the field . According to Baker Hughes, Canadian natural gas rigs are down 34% from last year and 48 % below the five-year average. In the US the situation is only marginally better with natural gas rigs down 28 % below last year at this time and 19 % below the five year average. The rate at which rig activity is declining is alarming as it was only at the beginning of 2009 that the rig count was above the fiveyear average. In absolute numbers, the natural gas rig count (U.S.) has dropped from 1,606 as at September 12th, 2008 to 1,018 as of February 20th.
What is apparent is that the high prices in early to mid 2008 led to a high number of rigs and current low prices are resulting in a low number of rigs. The key question is when will we see the full impact of this reduced drilling on production numbers.
One of the challenges in examining these numbers is that rig count data is available within a week of any change (for example we currently have data to February 20th) while natural gas production numbers are usually 3 months in arrears (currently we have data available to the end of November 2008).
Indirectly, storage data gives us a few clues as to how the market is balanced. Very recent storage reports from the Energy Information Administration (EIA) have been considered ‘bearish’, suggesting that in general supply is more ample than demand. This implies that we have not yet seen the impact of reduced drilling for natural gas. If you have any questions on anything in this report, please contact your Client Services
Representative.