Research published by the Raymond James Energy Group the week of Aug. 22 says the consensus forecast this coming season calls for a flattening of the US domestic gas supply curve rather than an outright decline.
This translates to year-over-year consensus growth expectations of about 2 billion cubic feet per day in 2012. However, RJ’s researchers say they simply don’t see how natural gas production growth stalls any time soon. They commented, “Specifically, we believe the US will show year-over-year gas production growth of at least 4 bcf per day in 2012.
The report added, “As much as we would like to get bullish on natural gas, the facts tell us that we still have a gas supply problem in the US that is likely to last at least through 2012. Despite year-over-year gas supply growth rates of around 5 bcf/day this year, consensus expectations are that US gas supply growth should slow down sharply in 2012 to a full-year growth of about 2 bcf/day y/y. We have heard many reasons why these gas supply growth rates must slow, including 1) the natural rig count is setting up to fall off a cliff after leases expire, 2) the decline curve treadmill will eventually catch up, and 3) the migration of rigs to liquids plays will lead to declines in natural gas production. The gas bulls have been leaning fruitlessly on these reasons for the past several years. When one examines the evidence, none of these myths seem to hold water.”
Raymond James concluded, “Our reality suggests that even if there is a modest decline in the gas rig count (reasonably, less than a 10% drop) in 2012, there are several drivers that should more than offset this reduction in drilling activity. In fact, we believe that gas supply growth may even accelerate over the next year due to the following: 1) drilling and completion efficiencies should continue to move higher; 2) ‘associated’ gas from liquids rich ‘oil’ plays should continue to increase, and 3) a hefty backlog of uncompleted wells still waiting behind pipe. To be conservative, we are modeling US gas supply growth in 2012 of only 4 bcf/day. Unfortunately, this is roughly twice as high as consensus expectations and is likely to keep a lid on US natural gas prices in the sub-$4.50 range for the next year.”