Consultants at PIRA Energy have news for all those Chicken Littles out there who estimated a gas production decline in 2003 and who are predicting another drop in 2004: production was up last year and it’s going to grow by another 1-2% in 2004.

“Whereas nearly everyone in the energy industry — from producers to consumers to even Alan Greenspan — agrees that long-term gas supply is a source of concern, opinions widely vary over the current status and near-term prospects for U.S. natural gas production,” the New York-based energy-consulting firm said in a statement Thursday. It sees recent industry estimates of production for 2003 and forecasts for 2004, “on balance, to be overly pessimistic.”

PIRA said a similar situation occurred in 2001 when the inability of large U.S. publicly traded E&P companies to expand output led many to conclude incorrectly that overall production growth was minimal, at best. Subsequently the industry found out that total U.S. gas output actually increased by 1.3 Bcf/d, or 2.5%, in 2001.

For 2003, PIRA believes the largest producers did an even worse job than in 2001 of replacing U.S. gas deliverability. The job of offsetting those losses became “an enormous challenge to other producers,” the group noted. Nonetheless, PIRA estimates that U.S. gas production posted a fractional year-on-year increase in 2003, primarily because of the strong efforts of the small independents, which are often overlooked by analysts.

For 2004, PIRA expects production will grow by 1-2%, “but it will not come easily. In the deepwater Gulf of Mexico and the Rocky Mountains, year-on-year gains look probable. Elsewhere, intensive gas-oriented drilling must be sustained to avoid offsetting declines,” the group said.

However, Greg Schuttlesworth, managing director of PIRA North America, warned that gas consumers shouldn’t get too optimistic about continuing production growth. “Don’t confuse for a moment our relative optimism for 2004, compared to the current consensus out there, with our longer term view, which has been pretty pessimistic about domestic production. We don’t really see any long-term growth — in fact, more likely flat to declining long-term domestic production.

“At the moment we see production declining next year, relative to 2004,” he added. “There are anomalies in 2004. The two big ones are the growth in the deepwater Gulf of Mexico [and growth in the Rockies until pipeline capacity is maxed out]. There are…projects from late last year through the first half or so of this year [in the deepwater Gulf] that just happen to be bunched up that are very gas oriented. Once you get past those projects, there’s just not a lot on the drawing board. The big 2005 and 2006 projects are extraordinarily oil oriented.”

Schuttlesworth said Rockies pipeline capacity should be filled up by mid 2005. Future growth depends on whether several pipeline expansions and extensions, including El Paso’s Cheyenne Plains, get built and how permitting and environmental issues play out in various basins, particularly the Powder River in Wyoming.

Another factor temporarily holding off production declines is the intense drilling activity doing on. “We see an ability of producers to pretty much maintain production in the mature areas where it is so hard to break even,” he said. But that won’t last much longer.

PIRA noted that the extreme time lag on Energy Information Administration supply data and other publicly available production information leaves gas market analysts with little, if any, definitive indication of recent production trends. PIRA is releasing its own monthly supply analysis to help fill the information gap.

PIRA said its statistical gas production models identify the underlying causes of regional gas production trends, capturing the dynamic inter-relationships between new gas and older gas output after taking into account declines from post-first-year wells. On March 9, PIRA is conducting a free workshop at the Hilton Americas Hotel in Houston to discuss the new product. For more information, contact PIRA at 212-686-6808, or email jsteele@pira.com.

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