Natural Gas production costs
Domestic natural gas production continues to reach all time highs.
Current prices do not support continued levels of production or expansion.
Sustaining prices at this level or lower will have lasting negative effects on extraction levels.
According to the EIA, in the past decade domestic dry shale production has ramped up from 2.84 billion cubic feet ((bcf)) per day to 38.88 Bcf per day. This growth was particularly driven by exploration and drilling in the Marcellus, Eagle Ford, and Haynesville reserves. In January of 2009 these three regions accounted for only 6% of the United State's daily production of 8.78 Bcf; by November of 2014 that percentage had risen to 58%. Growing at an astounding rate, the Marcellus shale region produced just over 14 Bcf per day in November of 2014; that's 50% more natural gas than the entire country produced in January of 2009. The growth of shale gas is truly astounding:
Despite this glut of production there has been seemingly little correlation with the price of natural gas, which at first glance of the above chart one would expect.
(click to enlarge)
This chart is only through November of 2014 as the shale production numbers for December are not available at the time of writing this article. Henry Hub natural gas prices have since fallen below $3/MMbtu, also not shown on the chart.
Since the price of natural gas has descended into territories not seen since the 2012 dip, it warrants an examination of how producers reacted to that move. In fact, despite the apparent steady rise in production, many of the regional drillers responded strongly to the low prices in late 2011 and 2012. Here are the six major natural gas producing regions by volume since 2009:
In particular, the Haynesville region severely pulled back in its natural gas drilling operations. Once the top producer in the United States, it now produces roughly two thirds of its peak production. In fact, in 2008 over 80% of rigs in the Haynesville region were drilling for natural gas, today less than 20% are drilling natural gas, most having switched over to oil.See also:
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How much natural gas cost?
Natural gas is a traded commodity on the market like oil, or any common stock. Therefore its price can fluctuate, sometimes wildly, especially dependent on the supply and demand for it.
As of January 14, 2010, it was at $5.58 per 1000 cubic feet.