Houston (Platts)--12Feb2009

A 40% decline in natural gas drilling activity in the US Lower 48 states
would cause gas production to fall in 2009, reversing a 7-year trend of
steadily increasing production, an analyst said Thursday.

George Lippman, president of Lippman Consulting, speaking before a
meeting of the Houston chapter of the International Association of Energy
Economics, said that following a series of boom-and-bust cycles, the Lower 48
gas supply begin to post a series of year-over-year increases in the early
years of the current decade.

In December, when Lippman produced the initial version of a gas
production outlook for the Lower 48 states, gas supplies available for sale
stood at about 60.4 Bcf/d. At the time, he forecast that new gas activity
would decline by about 10% in 2009 compared with 2008.

However, Lippman said that at the time the survey was being produced, he
started to see a much sharper downturn taking place in drilling rig activity,
as producers started to react to low energy prices and the global credit
crunch.

The total number of wells drilling for gas increased from 25,000 wells in
2003 to almost 35,000 wells in the 2006-07 time period, before declining
slightly in 2008, Lippman said. Currently "we're a little under 34,000 wells,"
he said. "From that our forecast for 2009 called for a decline to about 32,000
or about a 10% decline."

However, after seeing the sudden, precipitous drop in drilling activity
in recent weeks, the analyst prepared three additional projections, each
accounting for a greater drop in rig activity than the last.

If development in the Lower 48 drops another 10%, in addition to the
forecast 10% decrease projected in the original study, total gas supply still
would continue to go up in 2009, to a little over 60 Bcf/d, fueled by
production from existing wells plus the lower number of new wells brought on
line, Lippman said.

"By 2010 it starts to fall off and puts deliverability back to about 2008
level," he said.

"If there's an additional 20% cut, then 2009 volumes do not increase and
they stay flat to 2008," Lippman said. "Then we see this decline and by 2013
we're back to about 56 Bcf/d."

With a 30% drop in development beyond the original forecast, 2009
production starts to decline compared with 2008 levels, he said. "Instead of
the 60 Bcf/d it gets closer to 59 [Bcf/d]," Lippman said.

"Then we see a huge drop in 2010, all the way down to 56 Bcf/d, and by
2013 we're down to 53 Bcf/d," he said. "We're at the edge of that cliff,
trying to figure out where the bottom is."

--Jim Magill, jim_magill@platts.com