- U.S. natural gas futures have tumbled amid mild weather
- Price drop makes drilling uneconomic in marginal basins
As U.S. natural gas prices collapse to 1990s-era lows, producers in four shale plays are cutting their losses.
Surging output has sent gas futures tumbling, forcing drillers to abandon marginal plays in favor of more profitable areas. Drilling has ground to a halt in two gas basins in Oklahoma, along with the Fayetteville reservoir in Arkansas and the Niobrara formation in Colorado and Wyoming, data from Baker Hughes Inc. show.
Even as U.S. gas rigs drop to the lowest on record, there’s still no sign of declining production -- at least, not yet. Output from shale formations has left stockpiles at a seasonal record as a mild winter curtails demand, expanding a supply glut that’s threatening to keep prices depressed into the second half of the year.
“The decline in rigs is really accelerating, especially in some of these marginal plays where prices aren’t high enough to justify production," said John Kilduff, a partner at Again Capital LLC in New York. “Drilling is still profitable in other areas, though, so it may be a while before a recovery really takes hold.”
Gas futures on the New York Mercantile Exchange slid 10 percent this week to settle at $2.063 per million British thermal units on Friday. The March contract dropped to $1.954 in intraday trading on Feb. 4, the lowest since 1999 for the time of year.