Raymond James Eyes Production Drop
Raymond James & Associates' gas analysts warned investors
yesterday the latest production statistics indicate gas production
is down 4-6% compared to last year. The St. Petersburg, FL-based
firm highlighted several indicators, including sharply lower
year-to-year storage injections, reduced E&P company production
figures, a growing "balancing item" reported by the Department of
Energy in its gas market statistics and a survey of three of the
largest gas producing states.
The driving factor behind the production decline is the fact
that drilling activity has fallen off at the same time that gas
well depletion rates are accelerating, Raymond James said in its
weekly report. From the peak in December 1997 to the bottom in
April 1999, U.S. gas-directed drilling declined 45% (from 654 rigs
to 362 rigs). Additionally, gas production decline rates increased
by more than a third over the past decade, making it harder for
producers to maintain existing production levels.
Lower storage injections this year suggest that production is
down 4% to 5% through June, Raymond James said. And an analysis of
the DOE data with its ballooning "balancing item" also suggests
production could be much lower than has been previously reported.
Raymond James surveyed production statistics from Texas,
Louisiana and Oklahoma (excluding federal offshore production) and
discovered gas production in these three states combined was down
7.4% year-to-date through April and the downward trend seems to be
accelerating each month. Gas production in Louisiana was down 1.8%
to 4.3 Bcf/d through April compared to the same period last year.
In Texas, production was down 5.9% to 15.1 Bcf/d and in Oklahoma
production was down 17.6% to 3.8 Bcf/d. Raymond James also examined
offshore Gulf of Mexico statistics and estimated production to be
"The bottom line is that the effects from massive declines in
U.S. natural gas-directed drilling activity over the past 18 months
have only recently begun to show up in the figures posted by many
government agencies. Digging through our state agency data,
however, suggests that production is down much more than the DOE
numbers suggest... [T]his decreasing supply picture combined with
the outlook for increasing demand lead us to conclude that there is
a very high probability of a gas shortage this winter. If we have a
shortage, U.S. natural gas prices will likely be headed for record
highs this winter." In a previous report, Raymond James predicted
gas prices at the Henry Hub could peak at $10/MMBtu during high
demand periods this winter and would average $3/MMbtu next year
(see Daily GPI April 27).
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