Depressed Natural Gas Prices Lead to Lower Production – EIA

June 11, 2012 3:16 PM EDT
A new study by the EIA suggests that natural gas production levels off or declines as prices decline.

"There are two notable events in the last 7 years that suggest a leveling off of production following a decline in prices," notes the report. "The first was during the recent economic recession and the latest began in the fourth quarter of 2011 and continued through the first quarter of 2012."

The major events over the past seven years that have caused dry gas output to level off or even decline include: Hurricanes Katrina and Rita in 2005, Hurricanes Gustav and Ike in 2008, Economic recession and falling prices in 2008-2009, Winter well freeze-offs in 2011 (when water froze inside wellheads during extremely cold weather and blocked gas flows), and supply overhangs between Oct 2011-Mar 2012.

The spot price of natural and the natural gas ETF, United States Natural Gas (NYSE: UNG), hit ten-year lows earlier this year. Prices stabilized in June, but have turned negative in the past week as traders booked profits. Today UNG is lower by 3.7 percent, tracking crude oil prices that are also lower, as trader exit energy in mass.

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