A new market alert from BENTEK Energy examines a major development in natural gas markets resulting from the disconnection between future natural gas production and the number of active drilling rigs in the field. For decades, the active drilling rig count has served as the benchmark to forecast future natural gas supply. In the past, when the rig count increased, production growth was soon to follow. When the rig count fell, production eventually declined.

"The historic correlation between rig count and gas production rates began to fail midway through 2008 and completely broke down in 2009," noted BENTEK Managing Director Rusty Braziel. "We saw the rig count fall more than half in less than six months -- from a peak of 2,569 rigs in October 2008 to a low of 1,146 rigs in May 2009, as measured by RigData. Yet natural gas production has been up nearly 4%, or 2.1 billion cubic feet per day in 2009."

This divergence has perplexed natural gas industry observers because many of the underlying causes have been difficult to track. The BENTEK Market Alert highlights the impact from significant improvements in horizontal drilling and well-completion technologies over the past few years. The time it takes to spud, drill and complete a well is significantly shorter today compared to only two years ago. At the same time, the industry has also achieved initial high rates of production in the development of unconventional shale gas resources, resulting in huge productivity improvements.

"These efficiency gains have enabled the industry to do much more with far less, rendering the historic rig count correlation virtually meaningless in today's environment," noted Tom Sherman, senior energy analyst at BENTEK.

Tags: BENTEK Energy