Drilling ban boosts gas prices

Sam Fletcher
OGJ Senior Writer

US President Barack Obama’s May 30 ban against drilling in US waters deeper than 500 ft because of the Macondo blowout in the Gulf of Mexico helped drive up natural gas prices in the first days of June, industry analysts reported.

The July gas contract advanced 10.7¢ to $4.80/MMbtu June 4 on the New York Mercantile Exchange, posting “the biggest weekly gain of 11% since the week ended Dec. 18” due to increased summer cooling demand and reduced drilling for gas, said Anuj Sharma, research analyst at Pritchard Capital Partners LLC, Houston.

In the week ended June 4, Baker Hughes Inc. reported US drilling activity dropped for the first time in 6 weeks, down 29 rotary rigs to 1,506 still working. The number of rotary rigs drilling in US waters dropped by 24 with 24 units still working. That included the loss of 23 rigs in the gulf, with 23 still drilling. Of the US rigs still working, 947 were drilling for natural gas, 20 fewer than the previous week. The number of rigs still drilling for natural gas in the gulf declined 5 to 19. Land gas rigs were down 15 of which 4 were horizontal. Louisiana dropped 22 rigs to 191 still working. Texas lost 10 rigs to 646.

Although the glut of gas in storage weighs on prices, Sharma predicted the market will find support from higher industrial demand as the economy recovers and increased summer cooling demand, a likely “hyperactive” hurricane season, and a possible 500 MMcfd drop in gulf gas production this year due to the deepwater drilling moratorium.

Meanwhile, US coal prices have been climbing since the end of 2009, narrowing the price gap with gas in storage at Henry Hub, La. “We suspect this is a key explanation for why gas storage balances have been improving,” said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.

Sharma agreed higher coal prices have pushed the coal-to-gas switching parity price higher. “We estimate that for every dollar increase in Central Appalachian coal price, coal-to-gas switching floor moves up by approximately 6¢,” he said.

Oil prices fall
Oil prices dropped in early June as the European financial crisis spread and the US Department of Labor reported fewer-than-expected job additions during May.

A June 4 “flight to safety” by equity investors lifted the US dollar to a 4-year high against the euro. “Since all bets were on the economic recovery bailing us out of the European debt crisis, oil plunged 4.2% when the Labor Department reported that payrolls rose by only 431,000 in May, while the consensus called for a 536,000 gain,” Sharma said.

Private payrolls rose less than forecast and 411,000 of the 431,000 gain came from the temporary government hiring of the census workers. Prices were already feeling the pressure of the euro’s decline against the dollar as reports emerged that Hungary could be the next country to be afflicted by the European debt crisis, but fresh concerns about the strength of the US economic recovery is what broke the market’s back, he said. “We believe that although the recovery is rather jobless so far, the ingredients are there for it to pick up steam in the second half of the year.” Sharma said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Apart from the temporary additions from the census employment, there were only 20,000 jobs added to the nonfarm payrolls. This is problematic because the addition to the workforce for the census will soon be reversed and will therefore make it very likely that in coming months we start to see some negative numbers once again in the nonfarm payrolls.”

Jakob said, “Adjusting for the census employment, there has been only 455,000 jobs added in nonfarm payrolls this year. This makes an average per month of 91,000 jobs and compares [with] 6.8 million lost jobs since July 2008. In other words, at the current census-adjusted 2010 average, it will take 75 months or more than 6 years to reverse the job losses suffered since July 2008.”

Furthermore, Jakob said, “US unemployment rate fell slightly from 9.9% to 9.7%, which is a slow improvement. However, European unemployment numbers for April show that unemployment in Europe continues to increase and has moved from 10% in March to 10.1% in April. Therefore, until April, unemployment in the Atlantic Basin was still on a rising slope, with 3.8 million more unemployed than in April 2009 or 14.6 million more unemployed than in April 2008.”

(Online June 7, 2010; author’s e-mail: samf@ogjonline.com)

Related Articles

US Forest Service takes no stance on fracturing in national forest

12/12/2014

The US Forest Service has dropped a proposal that would have banned hydraulic fracturing in the George Washington National Forest.

Weak crude prices could threaten Bakken production growth

12/12/2014 Bakken shale production set another record in August, but weakening crude prices and flaring reduction efforts threatened to temper production grow...

BHI: US rig count forced down by large losses in Texas

12/12/2014 Forced down by large losses in Texas and specifically the Permian basin, the US drilling rig count plummeted 27 units to settle at 1,893 rigs worki...

Husky reports start of steam operations at Sunrise oil sands project

12/12/2014

Husky Energy, Calgary, reported the start of steam operations at the in situ Sunrise Oil Sands Project in northeastern Alberta.

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

Independent assessment hikes Husky heavy oil resources

12/12/2014 Husky Energy Inc., Calgary, says an independent assessment increases its heavy oil resources in the Lloydminster region of Alberta and Saskatchewan.

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

Stone drills successful Utica exploration well

12/10/2014 Stone Energy Corp., Lafayette, La., reported that its Pribble 6HU well in Wetzel County, W.Va., flowed from a 3,605-ft lateral at 30 MMcfd during t...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected