NATURAL GAS: Market glut could push prices lower

COMMENT: In the context of the BC government slashing royalties to encourage even more investment in BC's lucrative gas plays (link), this shows that the government is chasing the market to the bottom, and giving away a valuable natural resource.

Greenwire
Friday, August 7, 2009

U.S. natural gas producers continue to increase production volumes past market demand, leading many to predict a price plunge that could put some small firms out of business.

The ability to extract gas from shale has increased reserves and lowered production costs, but as the recession continues to depress energy demand market prices are already down 70 percent from last year's peak of $13 per million British thermal units.

But producers who are reaping rich supplies from newfound fields aren't willing to switch off the spigot in the hopes of keeping prices stable. "Pretty soon, everybody is going to start involuntarily curtailing gas so we don't see any reason to take it on the chin for the team any more than we did," said Aubrey McClendon, chief executive of Chesapeake Energy. Chesapeake stopped curbing output in the second quarter. Its output is up 5 percent from a year ago.

Some analysts have questioned the strategy of expanded production in the face of increased inventories (Jason Womack, Dow Jones/Wall Street Journal [subscription required], Aug. 6). -- PR

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