US Natural Gas production Charts
Source: Baker Hughes North America Rotary Rig Count
Notice the Marcellus going from nothing to a major contributor in just two years.
Production took off, weak demand dampened prices, storage filled up early
As more companies have tapped these unconventional plays, U.S. natural gas production has risen roughly 24% over the past five years, to 65.7 billion cubic feet per day, or Bcfd for short.
Rising production coupled with weak demand pushed down prices. There previously had been a rush to secure drilling leases in the U.S., but companies needed to drill otherwise they would be forced to give up the leases. Money from outside investors allowed the supply growth to continue in the face of challenging economics.
As you can see above, supply going into storage in 2011 (the green line) was much higher than the averages over the previous five- and 10-year periods.
Retreat begins, rigs shift to search for oil and natural gas liquids
Natural gas companies saw the writing on the wall. Rigs drilling for natural gas peaked in the last two weeks of October 2011.
Efforts from the likes of Sandridge Energy (NYSE: SD ) and others had been steadily building to use techniques learned in natural gas to drill for oil and natural gas liquids. As natural gas was no longer profitable there was no stopping the trend of rigs drilling for oil. The only thing slowing it down was rigs specifically targeting plays with natural gas liquids. Chesapeake Energy (NYSE: CHK ) and Kodiak Oil & Gas (NYSE: KOG ) shifted their focus to liquids while others focused on oil.
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How is natural gas used in the US?
Natural gas is used primarily for heating our homes in the winter months. It is also used to heat water and to wash clothes. Another use for natural gas is to fuel many vehicles, such as garbage trucks and transit buses. It is becoming a much more popular form of vehicle fuel.