Natural gas drilling activity in the U.S. Gulf of Mexico (GOM) generally increased over the past year, despite a drop in natural gas prices over much of the same period.
During September 2012, the average number of rigs actively drilling for natural gas in the GOM each week was more than double the average weekly count for September 2011, according to data provided by Baker Hughes Incorporated. Virtually all of these rigs were positioned in shallow water (water depth up to 500 feet).
The higher shallow water natural gas rig count reflects, in part, the resumption of well permitting by the Bureau of Safety and Environmental Enforcement (BSEE). According to BSEE, 162 applications for new shallow water wells have been submitted since the June 8, 2010 implementation of new safety and environmental standards (in response to the Macondo well blowout in April 2010). Of these (and an additional 20 applications submitted prior to June 8, 2010), only 6 were pending approval as of October 3, 2012. A second factor likely helping to boost shallow water GOM drilling activity is the comparatively high prices producers fetch for natural gas liquids extracted from the natural gas production stream.
Natural gas prices rose across most spot market locations. Henry Hub rose from $2.92 per MMBtu last Wednesday to $3.21 yesterday, an increase of 29 cents per MMBtu, or 10 percent. Other trading points also generally increased, with most showing gains ranging from about 20 to 40 cents per MMBtu. Algonquin Citygate, which delivers natural gas to Boston, saw price gains at the higher end of the range, likely owing to cooling New England weather. It began the reporting week at $3.18 per MMBtu and ended at $3.59 per MMBtu, a gain of 41 cents per MMBtu, or 13 percent.
The NYMEX futures price increased week-on-week, persistently above most spot prices. The NYMEX price rose from $3.023 per MMBtu last Wednesday to $3.395 per MMBtu yesterday. On Thursday, the first day of the November near-month futures contract, the NYMEX closed at $3.297 per MMBtu, 29 cents per MMBtu higher than the Henry Hub spot price. The futures price continued to climb throughout the week, peaking at $3.531 per MMBtu on Tuesday, and before dropping back to $3.395 per MMBtu yesterday. The 12-Month Strip (average of November 2012 to October 2013 contracts) gained 19 cents per MMBtu, starting at $3.578 per MMBtu last Wednesday and landing at $3.771 per MMBtu yesterday.