US natural gas prices fell again last week to their lowest point in more than six years, closing at $3.23 per 1000 cu. ft.  US natural gas stocks are now 36 percent greater than this time last year as industrial demand in the US continues to shrink. Gas futures have fallen 74 percent from a July high of $13. Active natural gas drilling rigs have dropped to 760 from a record 1,606 last August.

Industry executives say that natural gas prices must increase to $7 – $9 before there will be enough drilling to insure that US demand for heating and industrial usage is fulfilled. If current trends continue, US natural gas output will continue to drop. Given that the wells drilled in recent years are depleting much more rapidly than in the past, it will be at least after drilling picks up before output starts to increase.

The future for the natural gas industry over the next year or so is fraught with uncertainty. US industrial production continues to slip, and more LNG cargoes are arriving on US shores as demand in Asia and Europe slackens. However, the effort to reduce emissions in the US is picking up steam so there may be increased demand if some form of a greenhouse gas bill emerges from Congress this year.

In recent weeks there have been numerous reports of encouraging results from drilling in various shale formations around the country. Although the horizontal drilling used to exploit this resource is expensive, it appears, at least initially, to be producing solid results. Last week Petrohawk Energy announced that the Eagle Ford shale formation in south Texas “is one of the highest quality shale gas formations discovered in the US.”