U.S. Rig Count Up 17 by Baker Hughes

izontal rigs down one, second straight weekly decline
 (Updates with link to graphic)

NEW YORK, July 23 (Reuters) - The number of rigs drilling
for natural gas in the United States climbed for a fifth
straight week to a fresh 17-month high of 982, according to a
report on Friday by oil services firm Baker Hughes in Houston.

The gas-directed rig count, which rose by three this week,
is at its highest level since Feb. 20, 2009, when there were
1,018 gas rigs operating.

Horizontal rigs -- the type used to extract gas from shale
-- declined for a second straight week, dropping by one to 858.
Prior to the recent declines, the horizontal count climbed for
nine straight weeks to a record high 863.

U.S. natural gas futures NGc1, which were down about 5
cents, or 1 percent, at about $4.59 per million British thermal
units just before the report was released at 1 p.m. EDT (1700
GMT), showed little reaction to the data.

(Graphic link.reuters.com/sup34k)

Low gas prices in the first quarter had many analysts
expecting gas drilling to finally slow this year, but the rig
count is well above the 850 mark, which some analysts say is
necessary to turn year-on-year output negative.

Rising output from shale gas has been the primary driver of
increased gas production in the past few years, and some think
the recent drop in horizontal drilling, though small, may be an
early sign that shale output could eventually slow.

But recent Energy Information Administration estimates put
U.S. gas output this year at more than 22 tcf, its highest
level since 1973, and most traders agree a strong recovery in
industrial demand, which accounts for nearly 30 percent of
total gas consumption, may be needed to help balance an
oversupplied gas market.

The U.S. natural gas drilling rig count is up 317, or 48
percent, since bottoming at 665 on July 17, 2009, its lowest
level since May 3, 2002, when there were 640 active gas rigs.

While the gas rig count is about 39 percent off its record
peak of 1,606 in September 2008, it still stands 307 rigs, or
45 percent, above the same week last year.

With inventories still near record highs and 2010 gas
output likely to reach levels not seen since the early 1970s,
many traders expect the market to remain oversupplied this
year, unless demand picks up sharply with the economic
recovery.
 (Reporting by Joe Silha; Editing by Walter Bagley)