06 June 2012

Securities Research & Analytics
Conventional Gas: ‘Missing Link’ to US Gas
Supply Set to Decline
¦ Our take: Our deep dive analysis suggests that the unremediated decline
rate for conventional production is 11%, or 4.1 Bcf/d. Recent sharp declines
in conventional gas activity and more permanent shifts in producer
economics that favor liquids plays could bring about a faster reset in the
natural gas market than implied by the gas futures strip.
Supply work supports a more favorable market in 2013 and beyond. Based on our model, we see the potential for meaningful declines, with 3.2 Bcf/d of declines in 2013 and a further 1.6 Bcf/d decline in 2014. While these production declines will likely be partial offset by rising unconventional production, we see the potential for a more favorable gas market given an improving supply-demand balance.