Natural gas drilling has slowed during 2023 as gas prices have fallen sharply, according to the U.S. Energy Information Administration.
The EIA noted that Baker Hughes’ weekly rig count reported 118 natural gas rigs were active in the U.S. in late October, a decrease of 38 since the start of 2023.
“The decline in active drilling rigs coincides with lower natural gas prices for most of 2023, compared with relatively high gas prices for most of 2022,” the EIA report said.
Producers often drill fewer wells when prices are lower, and it typically takes four to six months for producers to respond to price changes. Producers must weigh price volatility, market uncertainty, current capital and labor costs, and other factors when determining how much to respond to price changes.
In 2022, natural gas prices took off, averaging $6.45 per million British thermal units (MMBtu) at the Henry Hub, a price benchmark. That price fell below $4 per MMBtu at the start of 2023 and continued its decline, reaching an average of $2.50 per MMBtu by the end of October. The increase was driven by increased domestic use and Europe’s need for alternate gas supplies after Russia’s invasion of Ukraine. However, prices have now cooled significantly due to last year’s warm winter resulting in an oversupply of U.S. natural gas.
The slower production trend is also being seen in Pennsylvania. A recent Independent Fiscal Office report said that 94 wells were drilled in the state in the second quarter of this year, representing a 29% decrease from the same period in 2022.
The reduced number of wells being spud, or drilled, along with the lower average natural gas price will also mean less in impact fees paid by operators to the state. Those impact fees are shared by counties and municipalities where drilling takes place, with Washington and Greene counties being among the top five in impact fee payments. The IFO has previously reported that impact fee distributions for 2023 are expected to much lower than the record $278.8 million paid in 2022.