A review of exploration and production company data corresponds to state data showing that U.S. natural gas production is declining despite higher rig counts in key states, according to a research report by energy analyst John Gerdes of Southwest Securities.

Using federal, state and company data, Gerdes analyzed a similar percentage of state data to cross-check U.S. producer reports as an alternative to the 43-company U.S. gas production survey that Southwest Securities conducts. He used the rationale that the Energy Information Administration (EIA) relies on state production data for its U.S. gas production data conclusions also.

“Notably, the second quarter 2001 peak in production from the top nine gas production states corresponds to the production peak evidenced in our company production survey,” Gerdes said. And because of that, “as suggested in early 2002, even a heightened level of gas rig activity appears unable to arrest the decline in U.S. gas production, supporting sustained long-term $4.75/Mcf natural gas prices.”

In December 2001 and March 2003, state gas production achieved the same peak evidenced in May 2001, he said. The December 2001 surge “likely relates to an elevated level of well completion activity subsequent to historically high gas drilling activity during the summer of 2001. The uplift in March 2001 production was likely associated with temporary ethane rejection (i.e., discontinuance of gas processing) during a period when ‘wet’ natural gas prices were higher than natural gas liquids (NGLs).”

However, other than the two obvious upticks, U.S. gas production “has remained on a fairly consistent downward trend,” Gerdes noted. He added that “even with what we believe to be an optimal number of gas rigs in operation since June 2003, U.S. gas production has continued its downward trajectory.”

State production data since the peak in May 2001 “displays the same trend in deteriorating U.S. gas production as indicated by our company production survey,” said Gerdes, but the “magnitude” of state declines is about a third of the approximate 4 Bcf/d decline indicated by Southwest Securities’ company surveys.

Since the peak in state and “therefore EIA gas production, the EIA balancing item used to reconcile U.S. gas supply and demand has been largely negative,” Gerdes said, with the negative equating to about “a third of the difference between our survey and state/EIA reported gas production.”

To reconcile the difference between Southwest Securities’ company data and state/EIA reported gas production, “it seems plausible to conclude” that the EIA “may be overstating U.S. gas demand, which is inherently difficult to measure, by about 3%, or a similar amount as U.S. supply,” according to Gerdes.

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