Natural Gas Price Friday 2009 Low

By JIM FUQUAY
jfuquay@star-telegram.com
Oil prices hit a four-year low and natural gas closed below $6 per 1,000 cubic feet for the first time since September 2007 on Friday after a report that U.S. employers cut the most jobs in 34 years in November, adding to expectations of a deep recession that will further curtail energy demand.

Natural gas settled at $5.74, down 28 cents on the day and down nearly 58 percent since its high this year of $13.58.

Crude-oil futures settled at $40.81 a barrel on the New York Mercantile Exchange, down nearly $3 for the day and 25 percent for the week. It was the biggest one-week decline since the sudden end of the first Persian Gulf War in 1991, and it left oil down 72 percent from its peak of $147.27 on July 11.

Some believe that the plunge raises the prospect of gas prices as low as $1 a gallon, a level not seen since March 1999. Oil would have to fall roughly an additional $10 a barrel for that to happen.

In the Fort Worth-Arlington area, the average price of regular unleaded gasoline was $1.67, according to AAA Texas. And according to GasBuddy.com, which carries price reports by motorists, gasoline could be had for $1.49 at several locations in Tarrant County on Friday afternoon.

After crude oil was driven to record highs in the year’s first half by speculation and fears of an impending worldwide shortage, the global financial meltdown has completely reversed that outlook to one of fear of excess supply as world economies slow. Merrill Lynch analysts said Thursday that crude oil could hit $25 "if the global recession extends to China."

Shortly before investment markets closed Friday, Chesapeake Energy said it would announce Monday "updated financial and operational plans through 2010 that will include a reduced capital expenditure budget and details of Chesapeake’s plans for building substantial cash resources over the next two years." The company’s shares (ticker: CHK) dipped 4.4 percent Friday, putting the stock at $11.32, its lowest close since 2004.

Oklahoma City-based Chesapeake, which bills itself as the largest U.S. producer of natural gas and the second-largest in the Barnett shale, and its peers have been hammered by the continued decline in gas prices. Since peaking in June, the Amex natural gas index, which includes 15 natural gas producers, including Fort Worth-based XTO Energy, is down 56 percent.

Wachovia Capital Markets analyst David Tameron, in a research note issued before Chesapeake’s announcement, suggested that more producers consider slashing spending until prices improve. Most big publicly traded independents have already crafted 2009 budgets in line with anticipated cash flow, but Tameron said they should instead adopt budgets "well below" cash flow and consider stock buybacks.

Richard Mason, publisher of Land Rig Newsletter, which follows onshore drilling activity, said he has changed his forecast for 2009 from a 20 percent decline in rigs to a 30 percent decline, equal to nearly 600 drilling rigs. Although producers are still enjoying revenues from production sold two and three months earlier, he said, "after the first of the year, we’ll see a cascade" of cutbacks in drilling.

"I don’t think the full impact is apparent yet," Mason said of recent price declines. "I think it may be the most difficult drilling environment in 10 years."

According to RigData’s most recent count of Barnett Shale drilling, released Friday, the number of rigs in the big North Texas gas field rose by six, to 192. But it has been trending lower since October.

Statewide, the number of active drilling rigs dipped by 38, to 852, while nationally the number was down 14 to 1,852, according to the Baker Hughes rig count, released Friday.

The tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488.

Although the collapse in petroleum prices promises pain for energy-producing areas like Texas and the Barnett Shale, it will ease consumer budgets that earlier this year struggled under the burden of $4 gasoline. That relief was cited as one of the reasons for the rebound Friday in the stock market.

"Just seeing that '1’ up there is just hard to imagine," said attorney Kevin Keating, 65, as he filled up his Volvo S60 at a Phoenix station that advertised gas at $1.67. "Wasn’t that long ago that we worried about the '4’ being up there."

With wages stagnant, home prices plummeting and foreclosures soaring, dollar-a-gallon gas may help mom fill up the family minivan and cabdrivers in New York City, but prices that low also would truly speak to how rotten the economy has become.

"The economy at that point worldwide would be in a serious, serious deterioration," said Geoff Sundstrom, spokesman for AAA.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said Thursday on his blog that retail prices could drop to $1.25 a gallon soon in parts of the Midwest, including Ohio, Indiana, Illinois and Missouri.

Already, some parts of the country are seeing prices around that level.

The jobs number suggests that demand for gasoline, which has been running well below year-ago levels even with the cheaper prices in the last several weeks, will fall even more in early 2009 as work-related driving plummets, Kloza said.

"I believe that January 2009 will represent the most 'challenging’ and ugly economic month of my lifetime, and my first memory is of Sputnik," Kloza said. Still, he does not believe that gas prices will make it to $1.

This report includes material from The Associated Press.