Sunday, January 29, 2012
Natural gas production responding to low prices
ConocoPhilips has said it will cut its North American gas production by 4 percent and shifted resources to oil. Chesapeake Energy announced earlier in the week that it will reduce production by 8 percent and divert drilling to oil. Nevertheless, there are limits to how much production can be cut. First, natural gas is often found with oil so as long as oil prices are high, gas will be produced. Second, many wells are drilled and produced under partnerships so there has to be agreement with partners to shutdown. The partner's economics may be different so that their desire may be to continue production.
Well production is not like a factory which can just be closed. The likelihood of an overshoot is not just a thought but a reality.