My question for the day is, if it takes $5.00 to make a gadget that, last month, was selling for $6.00, but this month is selling for $1.00 because of market forces, would YOU continue to make the gadget? I wouldn't. The same goes for oil exploration:
The number of oil and gas rigs deployed to tap new energy supplies across the country has plunged to less than 1,200 from 2,400 last summer, and energy executives say the drop is accelerating further.
Lower prices are bringing to an end an ambitious effort to squeeze more oil from aging fields and to tap new sources of natural gas. For the last four years, companies here drilled below airports, golf courses, churches and playgrounds in a frantic search for energy. They scoured the Rocky Mountains, the Great Plains, the Gulf of Mexico and Appalachia.
But the economic downturn has cut into demand. Global oil prices and American natural gas prices have plummeted two-thirds since last summer. Not even an unseasonably cold winter drove down unusually high inventories of natural gas.
The drop has been good news for American consumers, with gasoline now selling for $1.92 a gallon, on average, down from a high of $4.11 in July. But the result for companies is that it is becoming unprofitable to drill.
The reversal of fortune could have important implications for the future health of the nation’s energy companies, for consumer wallets and for national aspirations to rely less on foreign energy sources.
The drilling cutback has been particularly stark for natural gas. Gas exploration had soared in recent years after technology advances enabled the exploitation of gas trapped in huge shale beds found around Fort Worth, western Pennsylvania, upstate New York and elsewhere.
That's why this isn't surprising to me. And if they kept exploring and drilling, costs would go down making it far more less profitable.