Natural Gas

["Ian Murray" <seamus2001@xxxxxxxxx>]

[Oil & Gas Journal]
US will likely face 'major' natural gas supply problems, analyst says
By OGJ editors

HOUSTON, May 2 -- So far this year, US natural gas production is
declining faster than first anticipated, said Raymond James & Associates
Inc. in a recent report. And with this fall in gas supplies, gas prices
are expected to creep higher later in the year, RJA said: "For the past 6
months, our mantra. . .has been that natural gas will be the key driver
of US energy stocks and that lower US natural gas supply will drive gas
prices higher."

RJA had considered its earlier expectations that US gas production would
fall sequentially 1.5%/quarter during 2002 as "out on a limb," which
would result in a 5-6% year-over-year decline in gas production by
midsummer. "About a month ago, we were surprised by our preliminary first
quarter [exploration and production company] production survey that
suggested first quarter production may be down sequentially close to 2%
and year-on-year down by 3%. In the past week, however, even that bullish
estimate has been eclipsed by the actual production announcements from
the E&P companies," RJA noted.

"We now have a statistically significant sampling of US E&P companies
that tells us that not only is US gas production falling, but it is
falling faster than even our bullish projections," the analyst said. ". .
.E&P companies are reporting first quarter 2002 production down 2.9% from
the fourth quarter of 2001 and down 6.7% on a year-over-year basis."

RJA noted that while totals will likely change over the next few weeks as
more production reports trickle in from other E&P companies, ". . . [I]t
is becoming clear that the US is facing a major natural gas supply
problem that is likely to lead to higher gas prices over the summer and a
potential gas price explosion next winter."

Given that the US active rig count bottomed in March, RJA said that there
would be "no way" for gas production to increase in the second quarter.
"While US gas production is not likely to fall another 3% in the second
quarter of 2002, we do believe that it is likely to continue falling
sequentially by at least another 1.5% next quarter," RJA said.

RJA concluded that because a supply problem is more difficult to solve
than a demand problem, "it appears that our optimism on US gas prices has
not only been well-founded, but may even prove to be too conservative."