Natural gas prices in North America during the first half of 2012 were the lowest in 13 years. In April 1999, US natural gas wellhead prices averaged $1.90 per thousand cubic feet ($1.95/mmBtu). This year, April was the month with the lowest average wellhead gas prices so far, at $1.89 per thousand cubic feet ($1.94/mmBtu). The average intra-Alberta market gas price for April was CAN$1.76 per giga-joules (CAN$ 1.86/mmBtu), also a record low. April 2012 was also the first time when electric generation from gas (95.9 million megawatt-hours) approximately equaled that for coal (96 million megawatt-hours). Weak demand for Canadian and US natural gas has begun to eat away at company revenues, with Pengrowth Energy Corporation, for example, incurring a 65 percent decrease in second-quarter earnings. For the same reason, profits for the last quarter were also lower than expected for major oil companies including BP, Chevron, ExxonMobil, Shell, etc..
Although US gas prices rebounded last month, averaging $2.96/mmBtu (Henry Hub), the highest so far for 2012, the July price is still way below the five-year maximum of $11.06/mmBtu and is also lower than even the five-year minimum of $3.39/mmBtu.
Record high summer temperatures in the US, increased exports of gas to Mexico, and higher demand from power utilities that have made the switch from coal to gas buoyed up the gas prices somewhat, but not enough to offset the price-damping effect of declining storage capacities and steady (or even rising) production from current productive gas and oil+gas wells.
Total working gas volume in US underground storage currently amounts to 3.241 trillion cubic feet. This figure is 13.5 percent (386 billion cubic feet) higher than that of the five-year average. TransCanada has about 16 billion cubic feet of gas in storage at its Alberta system while Western Canadian provinces produce a combined daily output of 13.13 billion cubic feet of gas. Meanwhile, US dry natural gas production increased by 5 percent in the first half of the year, with significant contribution from the Marcellus shale where output almost doubled from June 2011 to June 2012. Total consumption, however, increased by only 1 percent, with increased demand originating mostly from gas-fed electric power plants and manufacturing facilities.
Low prices have led producers to shift their focus onto exploring and drilling for tight oil and wet gas resources. As of 10 August, there are 299 operating rotary rigs in Canada, out of a total available of 821. The number of rigs drilling for oil went up by five to 219, while rigs drilling for gas decreased by nine to only 80 rigs. US rotary rig numbers totaled 1931, with 1432 rigs drilling explicitly for oil and 495 rigs drilling explicitly for gas. As of the end of July, there were 1264 active oil and gas drilling rigs worldwide (excluding those in North America).
On the upside, North America is again becoming a favorable location for industrial and chemical companies who can now offset higher labor costs with lower production costs because of the decreased gas prices.
