Tuesday, September 28, 2010

Low Gas Price Shuts Wells

According to a report from Reuters, ConocoPhillips (NYSE:COP) CEO Jim Mulva revealed at an industry conference Monday that the company has shut-in some onshore North American natural gas production due to low prices. 

"We've had a small amount of production that we've shut in because we feel it's not that economic to produce," the executive told Reuters. "And so we'd rather keep it in the ground for when we can produce it at a later date." 

Natural gas is currently trading on the Henry Hub at about $3.75 per mmbtu. 

While the company is stopping some natural gas production onshore the US and Canada, ConocoPhillips is looking to increase investments in “liquids rich” shale plays, such as the Eagle Ford in South Texas, Mulva added. 

Investments in the Eagle Ford Shale play of South Texas and the Bakken Shale play of North Dakota have skyrocketed because these formations include both natural gas and oil, allowing operators to profitably produce oil while natural gas prices are low and wait to produce natural gas until prices creep back up. 

There has been a marked increase in natural gas production in the continental US with improvements to drilling and recovering techniques that have tapped the vast shale plays across the nation. The Marcellus Shale play in northeastern US is estimated to be the second largest natural gas field in the world. 

Because of the increased natural gas production – and the great possibility for more production – the US may become a natural gas exporter, via LNG. Three LNG receiving terminals have already petitioned the US government to be able to switch to export. 

Should that happen, the natural gas production in the US and prices should rebound substantially. As it is, many of the major producers are heavily invested in natural gas exploration and development, not only in the US shale plays, but also in the vast natural gas resources being developed offshore Western Australia.

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