Raymond James & Associates’ gas analysts warned investorsyesterday the latest production statistics indicate gas productionis down 4-6% compared to last year. The St. Petersburg, FL-basedfirm highlighted several indicators, including sharply loweryear-to-year storage injections, reduced E&P company productionfigures, a growing “balancing item” reported by the Department ofEnergy in its gas market statistics and a survey of three of thelargest gas producing states.
The driving factor behind the production decline is the factthat drilling activity has fallen off at the same time that gaswell depletion rates are accelerating, Raymond James said in itsweekly report. From the peak in December 1997 to the bottom inApril 1999, U.S. gas-directed drilling declined 45% (from 654 rigsto 362 rigs). Additionally, gas production decline rates increasedby more than a third over the past decade, making it harder forproducers to maintain existing production levels.
Lower storage injections this year suggest that production isdown 4% to 5% through June, Raymond James said. And an analysis ofthe DOE data with its ballooning “balancing item” also suggestsproduction could be much lower than has been previously reported.
Raymond James surveyed production statistics from Texas,Louisiana and Oklahoma (excluding federal offshore production) anddiscovered gas production in these three states combined was down7.4% year-to-date through April and the downward trend seems to beaccelerating each month. Gas production in Louisiana was down 1.8%to 4.3 Bcf/d through April compared to the same period last year.In Texas, production was down 5.9% to 15.1 Bcf/d and in Oklahomaproduction was down 17.6% to 3.8 Bcf/d. Raymond James also examinedoffshore Gulf of Mexico statistics and estimated production to bedown 5.7%.
“The bottom line is that the effects from massive declines inU.S. natural gas-directed drilling activity over the past 18 monthshave only recently begun to show up in the figures posted by manygovernment agencies. Digging through our state agency data,however, suggests that production is down much more than the DOEnumbers suggest… [T]his decreasing supply picture combined withthe outlook for increasing demand lead us to conclude that there isa very high probability of a gas shortage this winter. If we have ashortage, U.S. natural gas prices will likely be headed for recordhighs this winter.” In a previous report, Raymond James predictedgas prices at the Henry Hub could peak at $10/MMBtu during highdemand periods this winter and would average $3/MMbtu next year(see Daily GPI April 27).
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