Based on data from the first half of the year, Raymond James Energy projects a North American production increase of 3% or 2.25 Bcf/d for 2001, including 1.5 Bcf/d of U.S. production and 0.75 Bcf/d from Canada. Going forward, that’s not likely to be enough and “it is likely that a certain amount of gas demand will need to be removed from the market, thereby setting the stage for higher long-term gas prices.” This bears out the group’s projection for long-term gas prices of between $3.50 and $5.50/MMBtu.

The St. Petersburg, FL-based analysis and consulting firm noted a 3.4% increase in gas produced by 37 larger integrated and independent producers in the second quarter 2001, compared to production in 2Q 2000. But it also downgraded first quarter production figures to allow for the unprecedented amount of liquids which were left in the gas stream in the first quarter in order to capture the high gas prices. Typically, about 90% of the gas produced in the U.S. is processed with volume lost to liquids production of about 5-6% or about 2.5 Bcf/d. In 1Q 2001 Raymond James estimated about 30% less gas was processed. The group said first quarter volumes were inflated by about 0.75 Bcf/d due to the liquids left in the gas stream.

Meanwhile, given “increased rig inefficiency and degradation in drillable prospects,” Raymond James projects 800 to 900 gas rigs will be required just to maintain production at current levels. Even with increased production from the deepwater Gulf of Mexico (GOM), overall production in the region is declining because of the rapid drop in GOM shelf production. The Gulf contributes about 25% of U.S. production, but “even with an 18% increase in deepwater production in 2000, total GOM gas production declined 2.6%.”

Given the struggle just to maintain production at current levels, “it’s increasingly likely that in the long-term, demand rationalization at gas prices above $3.50/MMBtu will be required to balance the gas market,” the Raymond James group said.

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