With completed natural gas production numbers for 45 North American producers, Lehman Brothers analyst Tom Driscoll said Friday that second quarter U.S. natural gas production fell an estimated 4.8% or 2.3 Bcf/d to 45.2 Bcf/d from year-ago levels of 47.5 Bcf/d, and 0.4% sequentially from the first quarter. Even with stronger Canadian gas output, North American volumes fell an estimated 2.9% to 62 Bcf/d from 63.9 Bcf/d a year ago. One standout, however, are liquefied natural gas (LNG) imports into the Lower 48, which jumped an estimated 25% over 2Q2003 from 1.4 Bcf/d to 1.7 Bcf/d.

The survey accounts for about 70-75% of U.S. and Canadian gas production volumes.

“We estimate that U.S. natural gas (including the impact of rising imports) supply will decrease 1.6% in 2004, and 2.3% in 2005,” Driscoll said. Despite the analyst’s concerns that gas prices could weaken in the near term, “declining supply should support natural gas prices over the medium term.”

Driven by increased imports from Trinidad and Algeria versus 2Q2003, the analyst estimates that 2Q2004 LNG imports were up nearly 28% over a year ago and 3% sequentially over the first quarter. Driscoll estimates that LNG imports will rise 30% this year to 1.8 Bcf/d — “and satisfy 3.3% of U.S. demand.”

Although U.S. production fell, Canadian production was up 2.6% to 16.8 Bcf/d versus the year-ago level of 16.4 Bcf/d (with about half going to the U.S.) and was up 1.7% sequentially from the first quarter. Using Lehman’s gas supply model, Driscoll said there will be a 4-5% increase in projected U.S. imports from Canada this year, followed by a 1% increase in 2005 and a 1% decline in 2006-2008.

Overall, the model shows a 4% decline in forecasted U.S. production in 2004, with a 3% decline in 2005 followed by a 2% decline per year in 2006-2008. The model also shows a net storage injection of 0.1 Bcf/d this year. LNG imports will represent roughly 60-65% of available regasification capacity this year.

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