US natural gas production is set to decline amid tumbling prices as energy companies shift their focus toward more lucrative oil production, the chairman of US producer group Independent Petroleum Association of America said on Tuesday. While US natural gas prices have lost a third of their value this year, oil prices have risen to near $90 a barrel, prompting a move toward more oil production which is set to continue, Bruce Vincent said in an interview with Reuters.
SandRidge Energy Inc, a US-based oil and gas exploration company, earlier this month agreed to buy rival Arena Resources Inc, boosting its exposure to oil, while many other energy-producing companies have said they are reducing capital exposure to US gas drilling. Ample supply from increases in unconventional gas production like shale, coupled with still-weak industrial demand, pressured US gas prices over the past year and eroded profits from producing the fuel.
US gas futures were near $4.08 per mmBtu on Tuesday. The result of a shift in capital spending toward oil is a likely fall in US gas production. "The declines are real. As companies move away from natgas because you have soft prices, the declines will hit," Vincent said, adding that as prices rebound drilling could quickly pick up again. The US Energy Information Administration expects US natural gas production to fall in 2011 as drilling slows, which would be the first yearly decline since 2005. US crude oil production, however, is expected to increase through 2011.