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Natural Gas Prices, and Profits, Have Come Roaring Back

A natural gas drilling rig near Montoursville, Pa., on Sept. 8, 2012
A natural gas drilling rig near Montoursville, Pa., on Sept. 8, 2012Photograph by Robert Nickelsberg/Getty Image

An extended cold streak across much of the U.S. has pushed natural gas prices to their highest levels since September 2011. Briefly on Thursday and again in early trading today, prices topped $4 per million BTUs. That’s a 27 percent rally over the last five weeks and 73 percent higher than a year ago. With the U.S. Energy Information Administration expecting production to increase by just 0.7 percent this year, traders are placing more bullish bets on natural gas.

This is essentially the opposite of the story a year ago, when prices were on their way to bottoming out below $2 in April. Back then it appeared natural gas producers had shot themselves in the foot by over-drilling and crashing the price. As a result, the industry essentially cut in half the number of natural gas rigs operating in the field last year, from about 800 in January to a little more than 400 by the end of December, according to Baker Hughes, a Houston-based oil and gas services company. Despite higher prices, the rig count has essentially remained the same. It seems natural gas producers, burned by their own exuberance, are being more careful about overproducing.