"We acknowledge the limitations of three bearish data points over the last eight days, but we believe they point to the continued uncertainty about when a decrease in gas-focused drilling might manifest itself in lower production. We also point to the EIA's Monthly Gas Production Report, which reported April 2012 gross domestic production figures in late June. According to the EIA, Lower 48 gross production increased by almost 1% in April to 72.5 Bcf per day, near all-time-high production levels established in November 2011 and January 2012."Another way to look at it would be that it is impressive that natural gas has rallied this much without production declining yet.
If you think about the decline rate of the existing stock of natural gas wells, it is sizable. For the conventional share of production, you probably have something in the single digits. For the unconventional production, well north of a 1/3 decline rate annually.
So, in order to maintain gas production, we need to move quickly to a gas price that actually incentivizes drilling wells.