As Oil and Gas Prices Plunge, Drilling Frenzy Ends

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"The great American drilling boom is over."

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 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 boom has created such abundant supplies that companies are not only drilling less but also deciding not to pump from wells already drilled.

Thousands of oil and gas workers who migrated around the country to work in new fields for fat salaries have been laid off.

Energy experts and company executives warn that oil and gas companies now cutting back on investments will be unable to respond quickly to a future economic recovery.

That means a glut could rapidly turn to scarcity, sending energy prices soaring again. Already, experts are predicting that lower domestic gas production by the end of the year will require increased imports of liquefied natural gas from places like Qatar.

Through most of this year, gas supplies are not likely to decline sharply because so many shale wells came on line recently. But those wells should start to decline in productivity by next year, potentially leading to tight gas supplies if industrial and residential use picks up significantly in the second half of 2010.

"Inevitably, the market doesn't react; it overreacts and shoots itself in the foot," said Adam J. Robinson, director of commodities at Armored Wolf, a California hedge fund.

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