While everyone, including me, is talking about the “natural gas revolution” these days, slowly and quietly one other surprise has been taking shape: a revival in domestic oil drilling. As of mid-April, the number of oil drilling rigs passed up the number of gas drilling rigs in the United States, according to the Baker-Hughes rig count released this week by the Energy Information Administration. Ten years ago, as the figure displays, the ratio of gas to oil rigs was as high as four-to-one.
The reason for this dramatic turnabout is simple: falling natural gas prices, and rising oil prices. The right-hand axis of the chart below displays the ratio of oil prices to natural gas prices. For the first half of the last decade, the price of oil was within the historical range of about eight to ten times the price of gas for an equivalent amount of energy content, but over the last few years the ratio has broken out of the historic range. Expect this shift to be the new normal for oil and gas. And expect domestic oil production to continue to increase, even if new fields on- and offshore remain largely closed off. For more information, see here.
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