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IPAA Projects Short Supply, Strong Demand Growth

IPAA Projects Short Supply, Strong Demand Growth

Gas supply this year is expected to fall below last year's levels and will struggle to meet projected demand, the Independent Petroleum Association of America indicated in a report released to investors in New York yesterday. With the gas rig count down about a third compared to 1998 levels, U.S. production is expected to be down 1.2% this year to 18.75 Tcf, while gas imports are expected to rise 2.7% to about 3.22 Tcf, and gas demand is expected to shoot up 3.2% to 21.97 Tcf.

"Natural gas has become a victim of the crude oil price crisis," the study notes. "Natural gas rig counts have been needed upwards of the 600-rig level to maintain production over the past few years. Up to 80% of the gas being delivered today is from wells drilled in the 1990s. Capital expenditure budgets may be changed, but are not expected to change until the second half of the year."

IPAA's Scott Espenshade, vice president of economics, said with the steep decline rates in the Gulf Coast region and along the Continental Shelf offshore, producers had been struggling to maintain production even at peak drilling rates. With the current drilling decline, the Gulf is expected to be the first region to show a sharp drop in wellhead deliverability, he said.

Higher gas futures prices are expected to prompt a drilling rebound by mid-summer and U.S. gas production is expected to climb 1.3% next year, reaching 19 Tcf, IPAA said in its Short-Term Outlook. But the industry probably will need any storage surplus available this winter to meet growing demand.

Assuming normal weather for the rest of this year, IPAA sees demand finally returning to the strong growth the market experienced in the early 1990s. Residential demand is projected to grow by 6.7% this year and commercial gas usage is expected to increase 5.5%. Industrial demand is expected to grow 2.4% to 8.6 Tcf. The expected milder summer temperatures this year compared with 1998 and higher hydro electric output will result in lower demand for gas for electric generation this year, IPAA said.

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