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FARMINGTON – Low prices for natural gas are rippling through the San Juan Basin, causing some drillers to reconsider their plans.
Prices have been on a sharp decline as shales in Pennsylvania, North Dakota and elsewhere boomed, flooding the markets with natural gas.
Oil and gas industry insiders say natural gas is now so cheap that it’s hardly worth drilling for it.
Natural gas continued to fall on Thursday after U.S. supplies declined less than expected last week. Natural gas finished at $2.27 per 1,000 cubic feet in New York. The price has fallen about 27 percent this year and is at the lowest level in a decade.
Some analysts speculate that the price could fall to $2 per 1,000 cubic feet or even lower if demand doesn’t pick up significantly when air conditioners are turned on for the summer.
“It’s brutal, and I think the community needs to brace itself for this most recent slowdown,” said Jason Sandel, executive vice president of Aztec Well Servicing.
“If things remain the same, it’s going to be pretty gloomy here for the next couple of years,” he added.
Perhaps the most promising new natural gas project on the horizon, WPX Energy’s plan to drill 53 horizontal wells from eight well pads on Middle Mesa near Navajo Lake, has been indefinitely delayed. Production was planned to begin this fall. Low natural gas prices are to blame.
“We love the project and we like the geology,” WPX spokesman Kelly Swan said. “The resource, we believe, is there. But what we ran into was the decline in gas prices.”
WPX Energy, formerly Williams Exploration and Production, is instead focusing its efforts in basins that yield greater amounts of oil. Oil has held its value even as natural gas has declined.
Even if natural gas prices recover, the long lead times for the major drilling project means it’ll be 2013 at the earliest before WPX looks at the Middle Mesa project again, Swan said.
As prices drop, companies are drilling fewer new wells and plugging old ones.
The decline in the San Juan Basin can be seen in New Mexico Oil Conservation Division data for northwest New Mexico.
Production in 2011 fell below 815 billion cubic feet to the lowest level since 1992. Natural gas production has fallen for five straight years, down 19 percent from the 2006 total of more than 1 trillion cubic feet.
Many in the industry blame a supply glut brought on by record production. The amount of natural gas in storage in the U.S. fell 80 billion cubic feet to 2.433 trillion cubic feet last week. That figure is 48.3 percent more than the five-year average.
