U.S. oil and natural gas drilling activity dropped to 2004 levels in the first quarter, the American Petroleum Institute said Wednesday.
The U.S. rig count has been declining from last fall’s high of 2,031 rigs and is now less than half that at 1,005, according to the most recent report by Houston-based oil field services company Baker Hughes. Of those, 790 are natural gas rigs.
Many analysts expect the rig count to fall to about 800 as the industry adjusts to lower demand stemming from the recession and to a glut of natural gas from last year’s boom in shale drilling.
The institute estimates that 11,071 oil wells, natural gas wells and dry holes were completed in the first quarter this year, a 22 percent drop from the first quarter of last year and a 35 percent drop from the fourth quarter.
Also, the estimated number of new exploratory wells decreased by 11 percent from the first quarter of 2008, the industry trade group said. Natural gas wells completed in the first quarter dropped 23 percent, which the institute called “the most severe quarterly decline for natural gas plays in this decade.”
In its short-term energy and summer fuels outlook unveiled Tuesday, the Energy Information Administration, an arm of the Department of Energy, forecast natural gas spot prices to average $4.24 per thousand cubic feet this year and $5.83 next year.
“Higher prices are expected in 2010 as the economy improves. In addition to demand recovery, the current drilling cutback and limited access to credit for producers could lead to even higher prices if supply fails to keep pace with demand in the short term,” the agency said.
However, it said, prices could remain depressed amid larger-than-expected increases in liquefied natural gas imports as well as sustained economic weakness.
As of April 3, natural gas in storage available for use was 1.674 trillion cubic feet, 310 billion cubic feet above the five-year average and the second-highest recorded since 1991, behind only March 2006. The agency said those stockpiles could set records by the end of the summer.
It expects total natural gas consumption to fall by 1.8 percent, largely driven by a 7.4 percent drop in industrial demand.
The agency expects residential and commercial consumption to rise slightly because it is driven more by weather than the economy.