As Oil and Gas Prices Plunge, Drilling Frenzy Ends  

The NYT has a report on the crash in drilling for oil and gas in the US as a result of price calls caused by the economic downturn. Unconventional (shale) gas has been hard hit, which will mean a slump in production over the next year as the fast depletion characteristic of these fields make themselves known - As Oil and Gas Prices Plunge, Drilling Frenzy Ends.

The great American drilling boom is over.

The number of oil and gas rigs deployed to tap new energy supplies across the country has plunged to less than 1,200 from 2,400 last summer, and energy executives say the drop is accelerating further.

Lower prices are bringing to an end an ambitious effort to squeeze more oil from aging fields and to tap new sources of natural gas. For the last four years, companies here drilled below airports, golf courses, churches and playgrounds in a frantic search for energy. They scoured the Rocky Mountains, the Great Plains, the Gulf of Mexico and Appalachia.

But the economic downturn has cut into demand. Global oil prices and American natural gas prices have plummeted two-thirds since last summer. Not even an unseasonably cold winter drove down unusually high inventories of natural gas.

The drop has been good news for American consumers, with gasoline now selling for $1.92 a gallon, on average, down from a high of $4.11 in July. But the result for companies is that it is becoming unprofitable to drill.

The reversal of fortune could have important implications for the future health of the nation’s energy companies, for consumer wallets and for national aspirations to rely less on foreign energy sources.

The drilling cutback has been particularly stark for natural gas. Gas exploration had soared in recent years after technology advances enabled the exploitation of gas trapped in huge shale beds found around Fort Worth, western Pennsylvania, upstate New York and elsewhere.

But that boom has created such abundant supplies that companies are not only drilling less but also deciding not to pump from wells already drilled.

Thousands of oil and gas workers who migrated around the country to work in new fields for fat salaries have been laid off.

“The big bonanza is over,” said Jay Ewing, the completion and construction manager for Devon Energy in the Barnett Shale field here, where so far this year his company has brought its rig count from 35 to 8. “Everyone is really shocked how fast everything has turned.”

Energy experts and company executives warn that oil and gas companies now cutting back on investments will be unable to respond quickly to a future economic recovery. John Richels, Devon’s president, said that if the slump lasted two years, it could then take 18 to 24 months for companies to reassemble rig crews.

That means a glut could rapidly turn to scarcity, sending energy prices soaring again. Already, experts are predicting that lower domestic gas production by the end of the year will require increased imports of liquefied natural gas from places like Qatar.

Through most of this year, gas supplies are not likely to decline sharply because so many shale wells came on line recently. But those wells should start to decline in productivity by next year, potentially leading to tight gas supplies if industrial and residential use picks up significantly in the second half of 2010.