Natural-gas prices have surged in January as historically cold weather in the Northeast led to increased demand and reduced supply.
However, the price spike may mean little for the San Juan Basin. Natural-gas production has dropped each year since 2009 in La Plata County in reaction to low prices and a surge of drilling in other states.
“The price is still what’s preventing drilling wells,” said Christi Zeller, executive director of the La Plata County Energy Council, an industry group. “Even though we have a spike this month, it doesn’t change where money is being allocated for drilling programs.”
Also, the price could retreat after the supply-and-demand effects of the cold spell work themselves out.
Natural gas was trading last week at $4.50 per million British thermal units on the Henry Hub, a widely watched market indicator. It was the highest price seen for natural gas since summer 2011, according to the federal Energy Information Administration.
San Juan Basin operators don’t necessarily get the Henry Hub price, but other hubs broadly track the indicator.
The cold weather in much of the eastern United States also contributed to a decline in supply. The amount of natural gas in storage last week was 15 percent below the same point a year ago, according to the EIA.
La Plata County’s natural-gas production of 393 billion cubic feet in 2012 was the lowest level in Colorado Oil and Gas Conservation Commission data dating to 1999.
Natural-gas producers and service providers have suffered since 2009, when a long run of strong prices ended abruptly, leading to layoffs and idled rigs throughout the industry.
A relatively mature basin that has been drilled for decades, the San Juan was hit particularly hard as drillers chased emerging shale plays in Pennsylvania, North Dakota, Texas and elsewhere. Meanwhile, oil – a commodity that has traditionally taken a backseat to natural gas in the San Juan Basin – became much more profitable,
Only 372 natural-gas rigs were operating in the United States as of Jan. 3, according to Baker Hughes Inc., a Houston-based energy company that tracks rig counts. That compares with 1,378 oil rigs.
“Most operators, if they have a drilling budget, they’re going to be looking for oil instead of natural gas,” Zeller said.
A BP spokesman declined to comment on the price spike.
La Plata County is seeing some oil exploration. Houston-based Swift Energy Co. is drilling a horizontal well south of Hesperus that is searching for oil in the Niobrara formation.
cslothower@durangoherald.com
