Analysts with Raymond James aren’t one bit surprised that fourth quarter natural gas production in North America appears to show another decline — it’s deja vu all over again.

“We hate to sound like a broken record, but it’s not much better at all,” analysts said of Q42003’s domestic gas picture. “As our Q4 survey demonstrates, the production trend remains downward. The key point to make remains quite simple: as before, we see no significant near-term catalysts to alter the supply picture, and therefore, price rationing remains the only viable option to bring the market into equilibrium.”

The latest “Stat of the Week” noted that with both front-month gas contracts and the 12-month strip well above $5/Mcf since late November, “we believe pricing in the commodity markets reflects the tight supply environment — even if the equity markets (and most energy analysts) have yet to awaken to this reality.”

According to the Raymond James survey, U.S. gas production declined 2% on a year-over-year basis in the fourth quarter and 0.7% from the third quarter of 2003. The data, covering 48 of the largest gas producers in the United States, represents about 60% of total domestic gas production and was adjusted for property acquisitions and divestitures.

With the sequential drop, analysts conclude that the average sequential decline over the full year 2003 was 0.35%. Excluding the first quarter of 2003, which actually posted a modest increase sequentially from 4Q2002, “the magnitude of the average decline would be 1%, or nearly three times greater.”

The majors and gas utilities posted the biggest decline in U.S. production, according to Raymond James, down 6.2% year-over-year and down 1.2% sequentially from 3Q2003. Analysts said this was important for two reasons: the majors and gas utilities represent a “large proportion” of U.S. gas supply, and drilling activity among the majors and gas utilities was essentially flat from the beginning of 2003. “This indicates that further production declines lie ahead for this group.”

There is an “even more astonishing reality: the independents are driving nearly all of the drilling activity increases, with little production response to show for it.” Even though independents have been responsible for putting about 250 more rigs to work — a 34% increase over 2002 — their corresponding production results are only 2.7% higher year-over-year and “actually a 0.2% sequential decline.”

Only four of the independents surveyed by Raymond James showed any domestic gas growth: Pioneer Natural Resources, XTO Energy, Chesapeake Energy and EnCana. Without those four companies, analysts said that there would have been a 1.5% decline overall.

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