Recent Nat Gas Production Trends a Head Scratcher

J. MARSHALL ADKINS, Raymond James (08/16/2010)
"Now that our competitors have capitulated and joined the bearish natural gas camp, we think it’s finally time to 'rethink' just how bearish we are on U.S. natural gas. However, recent production trends have even us, the popularly coined 'perma-bears,' a little nervous. The EIA has reported two straight months of flat production, and our production survey indicates that we're in store for another flat month when the June data is reported (RJ was thinking over 0.5 Bcf/day of monthly growth). The implications on near-term storage and pricing are obviously meaningful, but the more important question in our heads is, 'What does this mean for 2011 production?' The short answer is, we don’t know.

To reiterate, our most logical explanations (in order of importance) are: 1) lower production from the Gulf due to the Obama drilling restrictions; 2) bottlenecks in takeaway capacity (pipelines); 3) constraints with frac crews; 4) disruptions and delays in gas processing plants; 5) reduced benefit from the early 2010 de-bottlenecking of shut-in U.S. gas supplies; and 6) increasing impact from high decline rate horizontal shale wells.

Get out your sweat rag because the natural gas debate is getting hotter. We're not yet ready to change our tune, as the availability of the domestic supply remains a structural problem for the natural gas market. That said, recent production trends have us scratching our heads."

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