For several years now it's been too easy to be a bear on U.S. natural gas supply and therefore, a bull on gas prices. Conventional wisdom has held that, despite a surge in U.S. natural gas drilling prompted by higher prices, aggregate production has remained stagnant. The numbers aren't encouraging. In 2004 the gas rig count increased 18%-but gas production that year fell 1.9%, according to Houston-based investment-banking firm Simmons & Co. International. Too, gas production added per gas well drilled has steadily declined to less than 1 million cubic feet per day since the late 1990s, the firm says, as operators pursue smaller reservoirs that are now economic thanks to high gas prices. The trend seemed to continue in 2005. Data from the top 20 producers (majors and independents) indicate that from fourth-quarter 2004 to the same quarter in 2005, daily U.S. gas output fell for 12 of them and rose for only eight, according to information compiled by gas producer Chesapeake Energy Corp. (For more on Chesapeake, see "All Gassed Up" in this issue.) Similarly, the overall Lower 48 production-decline rate has been accelerating. The latest data from energy-research and -consulting IHS Energy, as tracked by Houston-based producer EOG Resources Inc., show that domestic gas production will have an estimated 32% decline rate in 2006, up from 25% in 2000. These trends have reinforced the thinking of investors, capital providers and E&P companies that gas is the commodity to chase. "We believe that the long-term fundamentals in the gas market are sound...We believe that most E&P companies will drill through any weakness in gas prices," says investment-banking firm Petrie Parkman & Co. analyst Waqar Syed. For more on this, see the September issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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