U.S. Natural Gas Rig Count Down 12 This Week

The number of rigs drilling for natural
gas in the United States fell 12 this week to 973, its second straight
weekly decline, according to a report on Friday by oil services firm Baker
Hughes in Houston.

Two weeks ago, the gas-directed rig count hit 992, its highest level
since February 2009 when there were 1018 rigs drilling for gas.

Horizontal rigs - the type used to extract gas from shale - hit a
record high for a fourth straight week, climbing 9 to 904, Baker Hughes
said.

U.S. front-month September natural gas futures on the New York
Mercantile Exchange NGU0, which expire later Friday, showed little
reaction to the data, still trading down about 11 cents in the $3.71 area
after hitting an 11-month spot low of $3.702 at midday.

Low gas prices have some expecting gas drilling to finally slow later
this year or early next year, but the rig count is well above the 850 mark
which some analysts say is necessary to turn year-on-year output negative.

The U.S. natural gas drilling rig count is still up 308, or 46 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 from September 2008, it stands 274 rigs, or 39 percent, above the
same week last year.

Rising output from shale gas has been the primary driver of increased
gas production in the last few years, and most traders agree it will be
difficult to tighten the gas market unless shale drilling activity slows
sharply.

Recent EIA estimates put U.S. gas output this year at more than 22 tcf,
its highest level since 1973.

With inventories still high and 2010 gas output likely to reach levels
not seen in nearly 40 years, many traders expect prices to remain on the
defensive until the economy picks up.