API: Drilling down to 2004 levels

U.S. oil and natural gas drilling activity dropped to 2004 levels in the first quarter, the American Petroleum Institute said today.
The U.S. rig count has been falling from last fall’s high of 2031 rigs, and Houston’s Baker Hughes’ most recent count is now less than half that at 1,005. Many analysts expect the rig count to fall to 800 or so as the industry adjusts to lower demand stemming from the recession as well as a glut of natural gas from last year’s boom in shale drilling.
API estimates that 11,071 oil wells, natural gas wells and dry holes were completed in the first quarter this year, a 22 percent drop from the first quarter of last year and a 35 percent drop from the fourth quarter.
Also, the estimated number of new exploratory wells decreased by 11 percent from the first quarter of 2008.
Natural gas wells completed in the first quarter this year took a 23 percent dive, which API called “the most severe quarterly decline for natural gas plays in this decade.”
In its short-term energy and summer fuels outlook unveiled Tuesday, the Energy Information Administration forecast that natural gas spot prices will average $4.24 per thousand cubic feet this year and $5.83 per mcf next year.
“Higher prices are expected in 2010 as the economy improves. In addition to demand recovery, the current drilling cutback and limited access to credit for producers could lead to even higher prices if supply fails to keep pace with demand in the short term,” the EIA said
However, larger-than-expected increases in liquefied natural gas imports along with sustained economic weakness could keep prices depressed, the agency said.
As of April 3, natural gas in storage available for use was 1.674 trillion cubic feet, 310 billion cubic feet above the five-year average and the second-highest recorded since 1991, behind only March 2006. The EIA says those stockpiles could set records by the end of the summer.
The EIA expects total natural gas consumption to fall by 1.8 percent, largely driven by a 7.4 percent drop in industrial demand, which is linked to the recession. Residential and commercial consumption, which is driven more by weather than the economy, is expected to rise slightly.

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