US drillers' response to gas prices called 'amazing' by report

Washington (Platts)--10Feb2006

US gas companies drilled at such a feverish pace in 2005 that, were it
not for Hurricanes Katrina and Rita, annual production would have grown at its
fastest rate in more than a decade, according to a new report.

     Total domestic gas production declined by a 0.2% in 2005 compared with
2004, Golden, Colorado-based Bentek Energy said in a study released Friday.

     But if the 572 Bcf shut in by the hurricanes hadn't been lost, domestic
output would have risen by 1.4 Bcf/day, or 2.7%--the biggest year-over-year
gain since 1994.

     "The most significant implication to the industry's performance in 2005
is the supply response to higher prices," the report said. 

     "It was pretty amazing to us," Bentek Managing Director Russell Braziel
told Platts. "Every producer has responded [to prices] exactly the way you
would have predicted--they are producing all they can as quickly as they can.
The $64,000 dollar question is: How long can this be sustained?"

     Bentek found that double-digit growth in gas produced in 2005 in North
Texas, East Texas and the Rocky Mountains offset an 18% decline in gas
produced from the Gulf, where more than 1 Bcf/day is still off-line due to
hurricane-related damage.

     And while production growth is expected to continue in 2006, "demand and
supply are delicately balanced," Bentek said. "Sudden demand increases due to
weather, or supply curtailments due to storm damage or other incidents, will
rapidly disrupt the balance and significantly impact prices."

     In addition, "the increasing number of gas-fired generators means that
now, summer hot weather is a second major driver of total demand," the study
said. "While some industrial markets declined, particularly in the Texas and
Southeast regions, the increase in power generation demand was greater [in
2005], offsetting the losses."

     Braziel expects the industry to end the heating season with a record
amount of gas in storage, which he said was not necessarily a good thing for
producers and marketers that rely on strong prices and volatility.

     "Swelling storage is worrisome. If cold weather does not materialize in
February or early March, storage will likely be very high relative to
history," the study said. "If a hot early summer does not occur, and
production continues to grow, storage capacity could fill quickly. It is
likely that a sharp price correction will ensue."

     Braziel said gas would continue to trade in a "band" of prices, "but the
band will be wider than we're used to. If you told me last year we'd be seeing
$12[/Mcf] gas, I would have told you that you were out of your mind."

     He declined to speculate on how wide the trading range would be in the
coming months, but said a band of $4/Mcf to $12/Mcf was "not out of the
question."

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http://www.LNGdaily.platts.com.

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