Natural gas rig count
Baker Hughes (BHI) released its weekly natural gas rig count report on January 8, 2016. The natural gas rig count came in flat at 162 rigs for the week ending January 1, 2015. The US active weekly natural gas rig count fell by 166 rigs in 2015, as compared to 2014. This suggests that US natural gas drilling activity fell by a whopping 50% in 2015. We’ll explore the reasons for the drop in drilling activity below.
The US natural gas rig count fell due to the fall in natural gas prices, which fell for the second straight year. US natural gas prices fell by 19% in 2015 due to long-term oversupply. Consequently, US drilling activity fell. The fall in drilling activity affects US drillers like Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL). These companies make up 35% of the iShares U.S. Oil Equipment & Services ETF (IEZ).
The EIA’s (U.S. Energy Information Administration) monthly drilling report suggests that US natural gas drilling activity will decline in January 2016. However, long-term production data suggest supply will outpace demand. The improving efficiency, strategic planning, and lower drilling costs are supporting gas production despite record-low gas prices.
The depressed natural gas market and decreasing drilling activity suggest that the bearish trend may continue. The volatility in the energy market also impacts ETFs and ETNs like the PowerShares DB Energy Fund (DBE) and the VelocityShares 3x Long Natural Gas ETN (UGAZ).
In the next part of this series, we’ll discuss the latest natural gas price trends.