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Lehman Brothers Estimates 2Q U.S. Gas Production Rose Sequentially

U.S. natural gas production rose about 0.2% during the second quarter compared to first quarter volumes but was down 3.6% compared to the same period last year, according to estimates by Lehman Brothers analyst Thomas Driscoll. In comparison, Driscoll said his survey of about 46 producers shows total North American gas production rose 0.2% sequentially but fell 2.7% compared to 2Q2004.

Driscoll's data is substantially different from what has been reported by the Department of Energy (DOE). The DOE's Energy Information Administration (EIA) is expecting domestic production to fall only slightly (0.9%) during the quarter when compared to the same quarter in 2004.

In order to extrapolate his production estimates, Driscoll said he uses some historical DOE data. "We use 2002 as the base and reflect the trend that we have noted in company-reported data since that time," he said. "Our estimated production data is somewhat lower than the DOE data but we believe that investors should focus more on the production trends than on the absolute level of estimated production."

Due to the recent sequential increase in production, Driscoll said he reduced his forecast on the expected production decline this year. "Due to the improved trend we now forecast a full year production decline of 2.9% -- an improvement from the 3.7% decline that we forecast in a note on April 26. If our forecasts are correct, U.S. natural gas consumption will need to fall 1.5% this year. This implies that natural gas prices will need to remain robust to encourage consumers to use less natural gas."

In comparison, the EIA is predicting that U.S. gas production will be flat this year and will rise about 0.4% next year.

Driscoll is forecasting that Canadian production rose 0.1% in the second quarter compared to the first quarter and was up 0.1% compared to 2Q2004. He expects Canadian exports to the U.S. will rise 2.3% this year and 1.1% in 2006 but will remain flat in 2007 and 2008.

The Lehman Brothers analyst predicts that LNG imports will average 2.1 Bcf/d this year compared to 1.8 Bcf/d in 2004 and will grow to 2.3 Bcf/d next year, 2.6 Bcf/d in 2007 and 3.9 Bcf/d in 2008.

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