Raymond James analyst John Freeman said the bank's analysis of production numbers from publicly-traded producers shows gas supplies recovering after a slow second quarter and adding another 1.5 Bcf/d in the fourth quarter after posting gains of 1 Bcf/d in the third quarter, 400,000 Mcf/d in the second quarter and 750,000 Mcf/d in the first quarter.
"This fits the (fairly linear) growth trend that we've observed since late 2009, with supply growth averaging 250,000 to 500,000 Mcf/d each month," Freeman said. "Our back-of-the-envelope math suggests September production could be up 500,000 to 1 Bcf/d."
Driving the production gains are independent US producers, Freeman said, while the largest multinational companies are focused on more international projects.
Freeman cautioned traders not to count on a repeat of higher winter gas prices this year, as opposed to last year when storage was nearly as high.
"Extreme weather-related demand sucked about 1.25 to 2 Bcf/d out of the system versus seasonal norms. As such, we would expect withdrawals to be meaningfully lower this year under more normalized weather conditions," he said.
"Simple math tells us that under more normalized weather, we're actually looking at an astonishing 1.8 to 1.9 Tcf of gas in storage at the end of winter," Freeman said.
"$4/Mcf gas? Who cares? Drill, baby drill?" Freeman wrote in the note to clients. "Maybe that's not exactly what's going through operators' minds, but the resiliency of the natural gas rig count over the past seven months has shown a considerable degree of inelasticity to natural gas prices."
"Why are we running 950 rigs again?" he asked when the gas futures strip won't climb above $5/Mcf.
Freeman posits several reasons: drilling to hold leases by production, the shift to liquids-rich plays such as the southwestern Marcellus Shale and the Eagle Ford Shale, the need to further delineate the size of plays, high-priced hedges make it profitable, and, finally, drilling carries supplied
by joint venture partners.
"It's easier to drill when other people pay for it," he said.
