A year has passed since the natural gas rig count peaked in October 2008, but “normalized” estimated quarterly gas supply from publicly traded producers didn’t cross into negative territory until July from the 1Q2009 peak, which points to “substantial uncertainties” for supply and demand drivers in 2010, energy analysts with Raymond James & Associates Inc. said Monday.

In this week’s Stat of the Week, analysts John Freeman and Cory Garcia reviewed 3Q2009 production data by public companies and compared the data with gas output over the course of the past year. Raymond James analysts have been tracking reported gas production from publicly traded U.S. gas producers, which comprise about half of total domestic gas output, for about a decade. The latest survey points to another “strong” year/year (y/y) gas supply increase of 5.3%, or 1.6 Bcf/d.

“However, we would point out that this growth rate is artificially inflated given the supply disruptions caused by hurricanes Gustav and Ike in the prior year’s quarter (3Q2008). Therefore, we come up with a more moderate y/y growth rate of 1.2% (0.4 Bcf/d) after adjusting these figures to reflect hurricane-related shut-ins,” the duo wrote. “On the other hand, we believe that the combination of voluntary shut-ins, delayed natural gas well completions and pipeline constraints somewhat distorted and understated the ‘true’ 3Q2009 U.S. gas supply picture — a theme that will continue to play a role in the coming months.”

For most of the first six months of 2009, “what we’ve seen is a slow roll (somewhat of a plateauing effect) in production,” they wrote. “In fact, we believe total domestic supply in 3Q2009 is only down 1-1.5 Bcf/d from the peak, illustrating the resilience in the growth curve of private producers as well. Turning to 2010, caution remains the name of the game as substantial uncertainties still exist for the key natural gas supply and demand drivers.”

Three assumptions support Freeman’s and Garcia’s “subdued” natural gas price outlook of $5.50/Mcf on a full-year basis:

Natural gas futures are pointing to sub-$5/Mcf pricing through next May because “storage levels are now sitting above 3.8 Tcf, and there is a distinct possibility that we could see a net build in inventories this month. Second, on the demand front, we’ve seen only a minimal increase in industrial demand, which we believe is very likely to be offset by gas-to-coal switching in the coming months (a reversal from earlier this year). Third, don’t forget about the LNG cargoes sloshing around the seas this winter.

“Lastly, and probably the most significant factor weighing on near-term gas prices, natural gas production has yet to show the hard rollover that many of the pundits (read: bulls) were pointing to throughout 2009. In fact, the results from last quarter’s (3Q2009) public company U.S. natural gas production survey suggest that domestic gas supply is fading at only a modest pace.”

Gas bulls should tread “lightly into some potentially bullish figures” from the upcoming Energy Information Administration’s 914 production data for September and October “because this natural gas production ‘slip ‘n slide’ has some underlying rocks ahead (i.e., a significant inventory of uncompleted wells, shut-in production), which should push the ‘real’ supply rollover out into 2010,” said the duo. “So unless we see the semblance of a frosty winter, it’s hard to get too excited about natural gas prices this winter.”

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