Lehman Brothers Analyst Thomas Driscoll said in a third quarter update that domestic gas production from 34 companies that have reported (representing about 60% of total U.S. production) is down about 1.8% from the second quarter, which was nearly 2% below the analyst’s expectations. Production from the group is down 0.6% from the same quarter last year. However, Driscoll expects a slight rebound in the fourth and first quarters because of seasonal trends.

“If the remaining 12 companies in our survey hit our estimates for Q3 production, the full 46 company sample (which produces roughly two-thirds of U.S. production) would show Q3 production down 1.4% sequentially and 0.3% above year-ago levels,” said Driscoll.

He noted production in the third quarter typically has been weak. Over the last five years Q3 production has fallen an average of 1.3% while Q4 has shown an average decline of 0.2% and Q1 has been strong with an average increase of 0.9%. Driscoll attributes the weak 3Q production trend to several seasonal factors: the desire of producers to complete wells before the start of winter; summer pipeline maintenance is done during the shoulder months; storage and pipes are nearing full so the pressure is greater and there’s less available space in the system to handle more production; and the negative impact of hurricanes on Gulf production.

“Because the third quarter has historically shown the weakest production trends, we believe that Q4 and Q1 production will likely be marginally stronger than Q3 levels,” he said. “Despite the lower-than expected production levels, we believe that natural gas prices will likely suffer over the next several months as a result of high inventory levels and weak demand. We continue to forecast natural gas prices of $4.15/MMBtu for 2001, $2.50/MMBtu for 2002 and $2.75/MMBtu for 2003.”

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