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With US manufacturing slumping and cars produced for sale in the US currently down to an annual rate of about 4 million vehicles, the demand for natural gas has dropped markedly in recent weeks. Natural gas in the US now goes for around $4 per thousand cubic feet as compared to $13 last July. Six new LNG plants are due to come on stream this year adding to the glut. LNG imports into the US are expected to at least triple in the second half of 2009 as demand in Spain, Japan and Korea, the big three LNG importers, falls. Drilling in the US is down by nearly 50 percent in the last 27 weeks. This drop is much faster than that seen in previous drilling slumps back in 2001, 1997 and 1981.

Even the drop in US domestic production later this year is not likely to cause a rebound in prices as there will be so much LNG available for import.

In another development, companies drilling in Louisiana’s Haynesville shale are reporting extraordinary success. One well in Red River Parish averaged 23 million cubic feet/day in December as compared to the 2 or 3 million cubic feet a day that vertical wells have been producing from other natural gas formations in recent years. While these highly productive wells often have very rapid first-year decline rates, their productivity is enabling drillers to make a profit even at the low prices currently prevailing.

Until the US and global economies improve, natural gas prices are likely to remain low.