The continued slowdown in capital spending by U.S. producers will keep pushing natural gas production down at a rate of 1-1.5% per quarter “for the foreseeable future,” but the decline also will sustain higher gas prices, according to two investment analyst groups.

In its “Stat of the Week,” Raymond James analysts noted that third quarter production was down for the fifth consecutive quarter, supporting their earlier forecast that domestic production will be off 6% this year. “Furthermore, although the rig count bottomed in March, drilling activity has not increased significantly and is far short of the levels needed to overcome natural declines. Consequently, we are likely to continue seeing sequential declines in production” into the future.

Raymond James completed its pre-reporting third quarter survey of U.S. gas producers, covering 30 of the largest, or about 45% of total domestic production. Based on analysts’ findings, “it appears that third quarter U.S. natural gas production declined by approximately 1% relative to the second quarter, and is down approximately 6% on a year-to-year basis.”

In each of its previous production surveys, Raymond James found that actual reported production came in between its mid and low cases. The guidance issued by many of the companies also is not adjusted for Tropical Storm Isidore “which will likely push actual reported results even closer to or below our low-case scenario.”

However, analysts still expect actual reported results to show at least a 1% sequential decline “excluding the impact of the storm, which would provide yet another data point supporting our thesis that U.S. natural gas production is deteriorating rapidly.” Raymond James analysts added, “we continue to believe that the U.S. is on the verge of another major natural gas supply shortage, which could be felt as early as this coming winter.”

Raymond James said those companies reporting the sharpest U.S. natural gas production declines included Vintage Petroleum, down 25.8%; Unocal, 23.1%; Amerada Hess, 19.6%; Nuevo Energy, 18.2%; Apache Corp., 17.6%; Tom Brown Inc., 17%; Noble Affiliates, 14.9%; Anadarko Petroleum Corp., 13.6%; Burlington Resources Inc., 12.9%; Stone Energy, 10.5%; and El Paso Corp., 10.2%. The few producers reporting U.S. gas production up in the quarter included XTO Energy, up 10.7%; Williams Cos., 9.1%; and Newfield Exploration, 5%.

For the fourth quarter, CreditSights analysts said the oil and gas sector is “essentially a call on commodity prices,” and with natural gas prices doubled from lows early in the year, they are “unlikely to plummet, particularly given hurricane-related supply disruptions and potential damage to production facilities in the Gulf of Mexico.”

“All the major players in the Gulf have had to close down operations in the area over the past few weeks, and some have already reduced expected 3Q production volumes and 4Q output guidance as a result,” said CreditSights analysts. “For natural gas, weather conditions this upcoming winter are the wild card over the next three months, but tightening inventories will still support prices to some degree. We don’t see prices treading back to the $2/Mcf range, but any sustained increase from current levels will be dependent on how the winter shapes up.”

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