Don’t be fooled by the 269 Bcf (26%) gas storage surplus compared to the five-year average of working gas levels, analysts at Raymond James & Associates warned in an equity research note last week. The gas market is tighter than those numbers would suggest, and “weather-disguised tightness should begin to show up soon.”

According to Raymond James, abnormal weather that began with the mild summer last year and continued with a mild winter is the “only reason that gas storage is at the upper end of its historical range.” Without that mild weather and the impact of “Hurricane Ivan we believe that winter-ending gas storage would have been about 450 Bcf lower than it is currently.

“In other words, if it weren’t for the weather, gas storage would be near the lower end of its historical range and gas prices would be closer to a 6:1 ratio with crude prices (or over $8.50/Mcf).”

Raymond James analysts say that if there is a modest 0.5% (0.3 Bcf/d) decline in gas supply this summer, a 2% (1.2 Bcf/d) increase in demand as some expect and a return to normal weather, then working gas levels in storage could end the injection season at 3 Tcf, or 300 Bcf lower than last year.

“While this does not mean gas is undersupplied, it does mean that the market is not as oversupplied as many currently believe,” the analysts said.

Consultants at Energy and Environmental Analysis Inc. (EEA) and Strategic Energy & Economic Research Inc. (SEER) issued similarly bullish predictions recently that summer power demand would be up sharply. They both said the influence of high crude oil prices and strong summer power demand growth would provide solid price support despite historically high gas storage levels.

Meanwhile, the federal government also has raised its gas price forecast 20%, predicting that Henry Hub gas prices probably will average about $6.95/Mcf this year because of power demand growth, low hydroelectric output in the Pacific Northwest and the impact of crude oil prices on the gas market.

Where the Raymond James’s prediction appear to diverge from all the others is in its estimate of lower gas supply. “Taking into account the various supply sources (LNG, Canada and Mexico), we believe that total U.S. natural gas supply will fall another 0.5% (0.3 Bcf/d) this summer over last summer,” the Raymond James analysts said.

The Energy Information Administration said in its latest Short Term Energy Outlook that total domestic gas supply is likely to grow 1.7% this year to 22.66 Tcf. That includes a 0.7% increase in domestic dry gas production. Other consultants, meanwhile, also have predicted slightly higher domestic supply this year. While that may not seem like much, in the other forecasts it means season ending storage will be 3.2 Tcf rather than the 3 Tcf that Raymond James is predicting.

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