2Q09 U.S. Gas Production Survey

JOHN FREEMAN, Raymond James (08/17/2009)
"2Q09 U.S. gas production survey: public company data says U.S. gas supply is starting to fall, but not as fast as many think. Over the past few months the U.S. gas market has become markedly tighter. On a year-over-year basis, U.S. gas supply/demand has gone from 3+ Bcf/day looser in April to nearly 1 Bcf/day tighter currently. The gas bulls are taking this as a sign that the long-anticipated gas production roll-over is finally materializing and U.S. gas supply is falling off a cliff. Whoa Nelly! Not so fast, my friends. The results from last quarter's (2Q09) public company U.S. natural gas production survey are just in and it suggests that U.S. gas supply has finally begun to roll over, but at a very slow pace. While the highly visible EIA-914 U.S. gas supply report says that (hurricane adjusted) domestic production is down 2 Bcf/day from a fourth quarter of 2008 peak, the public company data says that (hurricane adjusted) U.S gas supply is down only 0.5 Bcf/day from a first quarter of 2009 peak. This is a big difference in U.S. gas supply trends and has profound implications for gas prices over the next six months.

And the survey says…For nearly a decade, we have been tracking reported gas production from publicly traded U.S. gas producers. We have just finished compiling our most recent (2Q09) quarterly analysis, in which publicly traded companies showed yet another strong y/y gas supply increase of 5.0% (or 1.5 Bcf/day). This growth comes despite some lingering (and likely permanent) shut-in volumes due to hurricanes Gustav and Ike. More noteworthy, we believe that the combination of voluntary shut-ins, delayed natural gas well completions, and pipeline constraints somewhat distorted and understated the “true” second quarter 2009 U.S. gas supply picture. While readily acknowledging the difficulty and potential error in adjusting for these factors, we would conservatively assume that adding back these volumes might have yielded an underlying y/y gas supply growth rate closer to 7.5% (or 2.3 Bcf/day). On a sequential basis, it is clear that the U.S. has finally begun to see a roll-over in domestic production—really more of a plateau. Our 2Q09 public company production survey showed a decline of 0.3% (or 0.1 Bcf/day) relative to the peak 1Q09 figure. If we add back the hurricane-related outages, the sequential decline would have been closer to 1.4% or 0.5 Bcf/day. Adding back the same 'distorting' factors previously described to 2Q yields a relatively flat gas production trend from 1Q to 2Q of 2009. In other words, data from the publicly traded U.S. gas producers says gas supply ain't falling very fast."

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