Natural Gas Prices vs. Rig Count
Bill Francis submits:
When I first really started following natural gas prices I would always hear people talking about rig count and how much it would affect the production of natural gas. It made common sense to think that the more rigs that are out there the more wells will be drilled and therefore the more gas comes online. This was the conventional thinking when I was positive that gas withdrawals would fall off before the heating season of ‘09 and ’10. This however was not the case and the drop in rig count didn’t really play that big of factor into a significant production decline that was supposedly going to follow the decline in rigs.
From going over the numbers I believe it has come clear that throughout the history of the liberalized US natural gas market (’91, more or less, to present) the rig count has not dictated the amount of production that will flow into the market. As you can see below, it is the price of natural gas that actually looks to be the indicator of rig count and not rig count being a leading indicator of production. I’ll take this a step further and argue that the more rigs that are out there, the higher the price and the more marginal the wells that are coming online will be.
