Gas supply this year is expected to fall below last year’slevels and will struggle to meet projected demand, the IndependentPetroleum Association of America indicated in a report released toinvestors in New York yesterday. With the gas rig count down abouta third compared to 1998 levels, U.S. production is expected to bedown 1.2% this year to 18.75 Tcf, while gas imports are expected torise 2.7% to about 3.22 Tcf, and gas demand is expected to shoot up3.2% 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 upwardsof the 600-rig level to maintain production over the past fewyears. Up to 80% of the gas being delivered today is from wellsdrilled 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 withthe steep decline rates in the Gulf Coast region and along theContinental Shelf offshore, producers had been struggling tomaintain production even at peak drilling rates. With the currentdrilling decline, the Gulf is expected to be the first region toshow a sharp drop in wellhead deliverability, he said.

Higher gas futures prices are expected to prompt a drillingrebound by mid-summer and U.S. gas production is expected to climb1.3% next year, reaching 19 Tcf, IPAA said in its Short-TermOutlook. But the industry probably will need any storage surplusavailable this winter to meet growing demand.

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

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