American oil and gas producers are hitting the brakes on drilling activity. For the third consecutive week, the number of operational rigs in the United States has declined, according to energy services firm Baker Hughes. This marks the first such streak since last October.
A Slowdown in Drilling Activity
The latest Baker Hughes report, a closely watched indicator of future production, revealed a one-rig decrease to a total of 620 for the week ending April 5th, 2024. This represents the lowest rig count since early February. Compared to last year, the total number of rigs is down a significant 17% or 131 rigs.
While oil rig numbers increased slightly by two to 508 this week, natural gas rigs took a steeper dive, falling by two to just 110 – the lowest level since January 2022. This decline in gas exploration is attributed to a significant drop in natural gas prices earlier this year, reaching a 3-and-a-half-year low. The Haynesville shale gas field, spanning Louisiana, Texas, and Arkansas, was particularly affected, losing two rigs this week and dropping to its lowest activity level since August 2020.
A Complex Landscape: Balancing Prices, Costs, and Output
The decline in rig count isn’t entirely unexpected. Following a boom period in 2021 (up 67%) and 2022 (up 33%), the oil and gas industry experienced a slowdown in 2023 due to several factors. Lower oil and gas prices, coupled with rising inflation leading to higher labor and equipment costs, discouraged aggressive drilling activities. Additionally, many companies prioritized debt repayment and shareholder returns over increased production.
The outlook for US oil and gas production is a mixed bag. While a 22% increase in oil prices so far in 2024 compared to 2023 incentivizes more drilling, the US Energy Information Administration (EIA) predicts a slight decrease in natural gas output due to persistently low prices. The EIA forecasts US crude oil production to climb from a record 12.9 million barrels per day (bpd) in 2023 to 13.2 million bpd in 2024 and eventually reach 13.6 million bpd in 2025. However, natural gas production is expected to dip from a record 103.8 bcfd in 2023 to 103.4 bcfd in 2024 as some producers cut back on spending and drilling activities.
While the near future may see a pause in the rapid growth of US oil and gas production, the long-term outlook remains positive. Rising oil prices and a potential rebound in natural gas prices could reignite drilling activity in the latter half of 2024 and beyond.
Source: Reuters
