Led by disappointing natural gas production by the majors, U.S. natural gas output is on a trajectory to decline 3.9% year-over-year in 2004, despite a robust 1,016 average gas rig forecast, according to a survey issued last week by Southwest Securities (SWS) of 43 top domestic producers. The survey concluded that U.S. gas production was flat sequentially and declined 4.9% versus 2Q2003.

The survey by analysts John Gerdes and Chris Clark is on par with Lehman Brothers’ Tom Driscoll, whose recent report estimated a decline in U.S. gas production of 4.8% (see Daily GPI, Aug. 16). However, both SWS and Lehman’s estimated gas decline is steeper than Raymond James’ 2Q production survey, which found U.S. output declined 3.8% year-over-year (see NGI, Aug. 16). All three analyst groups said their surveys represent about 70-75% of total U.S. gas output.

SWS analysts used a Rig Productivity Model, which assesses the relationship between U.S. natural gas production and the U.S. gas rig count data. Using the model, analysts found gas production was flat sequentially but well off the output from a year earlier. “Yet, our rig count/rig productivity model and deepwater production survey suggest the stable sequential gas production experienced in 2Q2004 is likely not indicative of a trend toward stabilized U.S. gas production, but instead the result of robust incremental deepwater production.”

To offset an estimated 3%/year long-term decline in U.S. gas production “to achieve a conservative no-gas demand growth” and assuming flat gas imports from Canada, SWS analysts said that after 2004, liquefied natural gas (LNG) imports will have to increase about 3 Bcf/d by 2007. “The combination of mature/declining North American natural gas supply and dependence on limited incremental LNG spot cargo availability through 2005 imply a natural gas price floor of $4.50-5/MMBtu is likely required to rationalize demand and attract LNG supplies.”

According to SWS, the top 10 U.S. gas producers’ 2Q2004 production declined 9.2% year-over-year and was down 1.9% sequentially. The sharp year-over-year decline in gas production has predominantly been driven by the top three U.S. gas producers: BP, ChevronTexaco and ExxonMobil. In fact, excluding the top 10 producers, 2Q2004 production increased 1.5% year-over-year. Of the 43 companies surveyed, 19 increased gas production organically compared with a year ago.

Of the top 10 U.S. producers, three showed gas production gains year-over-year: Anadarko Petroleum Corp., 6%; Burlington Resources, 4%; and Chesapeake Energy, 4%. Devon Energy Corp. and Dominion’s output was flat year-over-year. Meanwhile, BP showed a gas production decline of 11.3%, and was down sequentially 3% from the first quarter. Second place ChevronTexaco was down 13.1%, 3% sequentially; ExxonMobil, down 13.8%, 3% sequentially; Royal Dutch/Shell Group down 7.9%, 6% sequentially; and ConocoPhillips down 6.5%, 1% sequentially.

There also were steep declines year-over-year at El Paso Corp., 28.4% (which revised its reserves downward 41% earlier this year); Amerada Hess, 27.3%; Unocal, 24.2%; St. Mary, 18.9%; Apache Corp., 13.8%; Forest Oil, 13.3%; Marathon Oil, 13.1%;

Of the producers surveyed, nine showed appreciable gas production gains year-over-year: Tom Brown (which is now merged with EnCana Corp.), 34.1%; Cimarex, 34%; Murphy Oil, 23.4%; Williams, 22.2% Questar, 21.8% EnCana, 21%; Pogo Producing, 17.5%; and Evergreen Resources and Pioneer Natural Resources, 16.8%.

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