US gas output seen sliding for four years

US production of natural gas, the most widely used furnace fuel in the world’s largest economy, may tumble through 2012 as low prices prompt producers to shut down drilling rigs from Louisiana to the Rocky Mountains.

The Chart of the Day (A free email newsletter devoted to providing investors insightful and exclusive charts on a variety of financial markets and indicators) shows the relationship between reductions in drilling by US energy companies and output from gas wells. The red line shows the number of rigs drilling for gas in the US, as tracked by Baker Hughes Inc. In 2001-02, the so-called rig count declined for nine months in a row. Gas production, shown in white, declined for the next four years and didn’t return to the 2001 level until 2007.

Energy companies probably will slash onshore US gas drilling to 800 or 900 rigs this year from a peak of 1,606 in 2008 after prices for the fuel plunged 70 per cent from their 2008 high, said Keith Hutton, chief executive officer at Fort Worth, Texas-based producer XTO Energy Inc. As a result, gas output probably will decline by 3 per cent to 5 per cent in 2009, Hutton told investors on a conference call on Saturday.

Idling rigs slows new discoveries and prevents companies from offsetting output declines that average 30 per cent a year from established wells, Hutton said.

“If your underlying decline rate is 30 per cent and you drop your rig count in half, it’s hard as hell to catch back up,” said Hutton, 50. “If you start picking rig count up 10 or 15 per cent a year and it takes you three or four years to get back to the old rig count, you’re going to decline almost the entire time. We’re set for falling gas production for quite awhile here.”

London-based BP Plc is the largest producer of US gas, followed by Oklahoma City-based Chesapeake Energy Corp. and ConocoPhillips of Houston, according to the Natural Gas Supply Association in Washington.