Success Breeds Slowdown for U.S. Gas Boom: Federal Reserve

Photographer: George Frey/Bloomberg

A rig drills for natural gas in a field west of Rifle, Colorado, on Dec. 3, 2012. Gas inventories are so high, and prices so low, that new businesses are having trouble entering the business. Close

A rig drills for natural gas in a field west of Rifle, Colorado, on Dec. 3, 2012. Gas... Read More

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Photographer: George Frey/Bloomberg

A rig drills for natural gas in a field west of Rifle, Colorado, on Dec. 3, 2012. Gas inventories are so high, and prices so low, that new businesses are having trouble entering the business.

The U.S. natural gas boom has eased up slightly, a temporary victim of its own success. The trillions of cubic feet of the fuel trapped in shale rock formations is too cheap right now to make more businesses want to drill.

A report today from the Federal Reserve shows production of oil and gas wells fell 1.2 percent in November, the fifth consecutive decline. The monthly measure hasn’t dropped that many times in a row since the recession was wrapping up in 2009.

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The Fed study, part of a report used to gauge the health of the production economy, corroborates other indicators that show energy extraction activity waning. The total number of oil and gas rigs in the U.S. slid to 1,382 as of Dec. 7 from more than 2,000 a year ago, according to data from Baker Hughes Inc.; gas rigs led the decline. Data from the U.S. Energy Information Administration show natural gas withdrawals peaked in January and have since slid near 2011 levels of about 2,400,000 million cubic feet.

“Really low natural gas prices, at these levels, mean it’s not economic to be drilling gas-only wells,” said Christian O’Neill, an energy analyst at Bloomberg Industries.

Natural gas at the Henry Hub in Erath, Louisiana, the benchmark U.S. pricing point for New York Mercantile Exchange futures, reached a two month-low yesterday, falling to $3.27 per million British thermal units at close yesterday. That’s down from an average price of $3.99 in 2011.

“Right now inventories for natural gas are amongst the highest they’ve ever been,” O’Neill said. “What’s really going to dictate the gas market for 2013 is going to be weather. We need to have at least an average winter, if not really a colder than average winter, to increase demand, to get inventories down towards normal levels.”

“When weather forecasts are coming out on a weekly basis warmer than normal, which they have been over the past couple of weeks, it’s really depressed natural gas prices,” he said.

The warmth hasn’t occurred just over the last few weeks. The lower 48 U.S. states are on track to have their warmest year ever.

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