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October 14th, 2012:

Natural Gas Prices Could Double This Winter, Analyst Says

American Energy Coalition - October 14th, 2012

While the gas utilities are working furiously to recruit new customers for gas heat with the lure of low prices, one prominent analyst is predicting that natural gas prices will more than double as soon as this winter.

Writing for Forbes.com, Richard Finger looked at recent trends in natural gas drilling and storage and predicted an imminent price explosion. In a highly technical analysis, Finger points to the fact that much less natural gas is going into storage in 2012 than in 2011. "After viewing records for over 70 wells with between nine and 18 months of production data, the declines continue to be precipitous. A one-year decline rate of 80% or more was more the norm than the exception for the data I inspected. In other words a well making 800 BOE (barrels of oil equivalent) on day one, more likely than not was generating well under 200 BOE twelve months later," he wrote. He also noted a 55 percent decrease in the number of productive gas drilling rigs, from 936 one year ago to 422 in 2012.

Finger goes on to explain that the economics of gas drilling do not support the current natural gas prices of about $3.60/thousand cubic feet of gas. Prices have to be at least $6/thousand cubic feet for producers to make even a marginal profit, he wrote.

Cold weather could cause problems with the natural has supply, the article states. "Let's say we have a normal winter. With what may be less than 400 gas rigs in operation, sooner rather than later supplies will get very strained and a price spike is highly likely. ... If we have any kind of an early cold snap, 400 rigs will not be able to alleviate tight supplies."

To read the Forbes.com article, click here.

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