Whitesburg KY

Glut in natural gas costs 62 jobs here

A natural gas production boom that has created a glut in supply has resulted in the loss of 62 more jobs in Letcher County.

Houston-based Baker Hughes Incorporated, formerly known as BJ Services, said the employees would be laid off permanently from its natural gas well servicing operation at the Gateway Industrial Business Park in Jenkins.

Richard Vaclavik, vice president of operations for Baker Hughes’s U.S. Land Pressure Pumping division, wrote in a letter to Jenkins Mayor G.C. Kincer that layoffs will occur June 29. Vaclavik said in the letter that notices have been sent to the employees.

“The City is very shocked and disappointed,” said Kincer. “It was unexpected. We are just hoping we can find a replacement of equal value.”

Jobs affected include 32 field operators.

Vaclavik noted that conditions in the U.S. energy market have changed dramatically over the last three months and U.S. natural gas prices have hit a 10-year low.

“These conditions have negatively impacted the U.S. pressure pumping and coiled tubing market and reduced the overall need for these services,” wrote Vaclavik. “Baker Hughes Incorporated is responding rapidly to these changing market conditions and in order to meet the business needs of our customers we are making the business decision to reduce our staffing levels for some locations in the U.S.”

The region’s largest natural gas producer, Pittsburgh-based EQT, announced earlier this year it was suspending drilling operations in eastern Kentucky as a result of the low prices and glut.

Battered natural gas prices which have been at a 10-year low may have gotten a bit of a break as cooler spring weather raised expectations that demand may improve.

Natural gas rose 6 cents to finish at $2.186 per 1,000 cubic feet at the end of trading last week. That was up nearly 15 percent from April 19 when the price hit the lowest level in more than a decade at $1.907 per 1,000 cubic feet.

The price has plunged this year as a natural gas production boom created a glut of supply and demand fell during a mild winter.

Now, some in the market are suggesting demand will strengthen, which help boost prices.

Cooler weather that moved across the Northeast, parts of the Midwest and the Rockies last weekend prompted homeowners to turn up the heat, creating more need for natural gas.

In addition, utilities have been substituting cheaper natural gas for coal to generate electricity. As much as six billion cubic feet a day of natural gas has replaced coal-fired power generation this year, said Ron Denhardt, an analyst with Strategic Energy & Economic Research. Consumption on an annual basis is about 66 billion to 67 billion cubic feet a day.

However, several analysts believe any rally will be short-lived.

With May here, any pickup in demand for heating will be brief. About 70 percent of the nation’s demand for natural gas comes during the winter to heat homes and businesses.

Natural gas inventories continue to build. Analysts say that underground storage could be filled to the brim by fall without additional production cuts or an extremely hot summer that boosts electricity demand for cooling.

“It’s fundamentally a disastrous market,” Denhardt said. “I can’t see any turnaround of any significance before November, December of this year.”

PFGBest analyst Phil Flynn said there has to be an even bigger drop in price to force companies to cut more production. He speculated that the price will test an alltime low of $1.35 per 1,000 cubic feet.

Some of the information used in this report was gathered by The Associated Press.

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