With most of the largest producers’ year-end results in, Lehman Brothers estimates that total 2004 U.S. natural gas supply declined 3.5% over 2003. A 5% decline in domestic production (4.25-4.5% excluding Hurricane Ivan) was partly mitigated by increased Canadian and liquefied natural gas (LNG) imports, said analyst Thomas Driscoll.

The survey contrasts with a latest update by the Department of Energy’s (DOE) “Short-Term Energy Outlook,” which predicts said domestic gas production will grow 1.6% this year due to high gas-directed drilling rates and continued recovery in the Gulf of Mexico from the effects of Hurricane Ivan. EIA predicts that domestic gas production will be down 1.9% in the first quarter from 1Q2004 levels, flat in the second quarter, up 2.2% in the third quarter and up 6.4% by the fourth quarter to 4.84 Tcf (or 53.8 Bcf/d) (see Daily GPI, Feb. 9).

Lehman analysts use DOE production data from 1998-2002, with 2002 as the base, “to reflect the trend that we have noted in company-reported data since that time.” Driscoll said that even though Lehman’s estimate is lower than DOE’s, “we believe that investors should focus more on the production trends than on the absolute level of estimated production.”

Using his own production estimates, Driscoll predicts that overall U.S. gas supply will be “roughly unchanged” over the next several years, as rising LNG imports offset declining U.S. production.

“The major components of our estimate are a 5% decline forecasted in U.S. production in 2004, no change in 2005, followed by 1% declines per year in 2006-2008,” Driscoll wrote. The research note also forecasts a 2.4% increase in estimated imports from Canada in 2004, a 1% increase in 2005, followed by 1% declines per year in 2006-2008.

Estimated gas output in 4Q2004 decreased 1.8% sequentially from 3Q2004, and 4.6% versus 4Q2003, according to the survey. LNG imports in 4Q2004 actually declined 432 MMcf/d versus 3Q2004 to about 1.73 Bcf/d (including Puerto Rico). The decrease was “primarily due to the temporary shut down at Lake Charles [LA] for construction, which had a 472 Bcf/d decline versus 3Q2004.”

Even with the sequential decline, 4Q2004 LNG imports jumped nearly 100 MMcf/d versus 4Q2003, led by a 300 MMcf/d rise in imports at the terminal at Elba Island and about 50 MMcf/d increases at both Everett and Cove Point.

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