The gas bulls are firmly entrenched at the St. Petersburg, FLoffices of Raymond James & Associates. The group put out areport last week projecting either the loss of 5 Bcf/d of gasdemand this winter due to soaring gas prices or an “impossible”negative balance of working gas in storage at the end of the winterheating season, given normal temperatures this winter.

“In our normal winter case, year-to-year winter demand shouldincrease by a whopping 9.3 Bcf/d, or about 1,400 Bcf for the entirefive month winter heating season. The key driver here is thatexceptionally warm winters for the past four winters have maskedthe strong economic growth that has occurred in the U.S. over thepast five years.”

Raymond James analysts noted that temperatures so far thiswinter have been 17% below normal and the National Weather Serviceis predicting more of the same for the next couple weeks. RaymondJames expected a 122 Bcf withdrawal to be reported by the AmericanGas Association last Wednesday for the previous week’s storageactivity despite the holiday, but that rather high number turnedout to be a little lower than what AGA ended up reporting. Theweekly withdrawal came in at 146 Bcf, the largest weekly withdrawalever reported by AGA for a week in November. Working gas levels arenot nearly 500 Bcf behind levels at the same time last year andnearly 300 Bcf behind the five-year average.

“Even if the rest of the winter is 14% warmer than normal, weare now likely to end up with less than 900 Bcf in storage at theend of the winter,” said Raymond James. “If the rest of the winteris normal, the theoretical storage deficit should grow to anegative 293 Bcf.”

Raymond James analysts admitted it’s impossible to reach such alevel. “History has shown that not only is this highly unlikely,but the gas distribution system begins to run into significantproblems when gas storage levels fall below 600 Bcf in storage.”

The last time that happened was the 1995-96 heating season whengas prices went through the roof, and Raymond James predicts thatwill occur again this winter. “In other words, gas prices mustcontinue to rise sufficiently to drive as much as 5 Bcf/d of demandout of U.S. gas markets. What is that price? We have no idea but itis safe to assume that price will be somewhere higher than $5 andlikely somewhere less than $50/Mcf.”

Rocco Canonica

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