Last week, the crude oil-to-natural gas price ratio (the Brent crude oil price in dollars per barrel divided by the Henry Hub natural gas price in dollars per million British thermal units (MMBtu)) passed 50—reaching 54.36 on March 6, 2012. The ratio, which gauges the fuels' relative market value, averaged only about 9 from 2000 to 2009. The relatively high price of crude oil has led to a decrease in natural gas-directed rigs, as producers have shifted their focus to crude oil and natural gas liquids. At a price ratio of 50, crude oil is roughly eight times more valuable than natural gas on an energy-equivalent basis.
Rig data from Smith Bits reflect how the crude oil-to-natural gas price ratio may be influencing drilling:
- Large declines in rig counts have occurred in the Haynesville Shale in Louisiana, which has a mostly dry natural gas profile.
- Rig counts in the Marcellus Shale have remained mostly flat in the last year, although recent company announcements indicate increased activity in the "wet" (liquids-rich) areas of the play in Western Pennsylvania.
- Growth in natural gas and oil rigs has occurred in the wet portions of the Eagle Ford shale, located in Southeast Texas.
(For the Week Ending Wednesday, March 7, 2012)
- The multi-week downtrend in natural gas prices across the country continued throughout the report week, with the exception of some brief upticks that were followed by quick reversals. The Henry Hub price closed at $2.24 per MMBtu on March 7, down 20 cents for the week.
- At the New York Mercantile Exchange (NYMEX), the April 2012 natural gas contract fell 31.4 cents per MMBtu for the week to close at $2.302 per MMBtu.
- Working natural gas in storage fell last week to 2,433 billion cubic feet (Bcf) as of Friday, March 2, according to the U.S. Energy Information Administration's (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied net withdrawal for the week was 80 Bcf, positioning storage volumes 739 Bcf above year-ago levels.
- The natural gas rotary rig count, as reported March 2 by Baker Hughes Incorporated, fell for the eighth week in a row, decreasing by 19 to 691 active units, the lowest since August 2009. Meanwhile, oil-directed rigs increased by 28 to 1293, 61 percent above the year-ago level.
In keeping with the decline in natural gas prices across most of the country, the Henry Hub day ahead price fell 8.2 percent, from $2.44 per MMBtu the previous Wednesday to $2.24 per MMBtu yesterday. With the exception of a slight (1 cent) gain last Thursday, the price fell consistently throughout the week as warmer temperatures moved across most of the country.