Natural Gas Rig Count

The natural gas rig count continues to crater, falling by another 16 units to 672 total rigs. Since peaking in September 2008 at over 1600, the number of natural gas rigs in operation has fallen by nearly 60%. While prices remain under severe pressure due to excess supply and lackluster demand, the rapid falloff in rig count suggests a major bull market is in the works. Further, current spot prices ($3.50 BTU) remain well below the marginal cost of production for most fields (generally around $6-$7), almost guaranteeing that prices will have to rise to coax new supply onto the market. Finally, current spot prices incorporate almost no risk premium for seasonal hurricanes and/or legislation that will likely favor natural gas in Obama’s impending energy bill.

The cure for low prices is lows prices and nowhere is that more evident than in the natural gas market.