The gas storage surplus had a bite taken out of it last week, and consultant Stephen Smith believes the market should expect to see net withdrawals going forward because of the early cold weather.

“If the current [heating degree day] forecast for the next two weeks holds up, the storage report for the week ending Oct. 20 should prove to be the peak — while not as large as once projected because of the early cold weather in the Midwest and Northeast (and also some shut-ins), this remains a formidable storage surplus,” said Smith.

There were about 22% more (colder) HDDs than normal during the week ending Oct. 20 and working gas levels ended up rising only 19 Bcf to 3,461 Bcf, just shy of the all-time record of 3,472 Bcf, which was posted at the end of November 1990. The 19 Bcf injection came in well below last year’s 77 Bcf injection and the five-year average build of 49 Bcf.

Smith had projected a 17 Bcf injection. A Reuters survey of 24 industry players had been calling for an average build of 31 Bcf, while the ICAP storage options auction on Wednesday indicated a 24 Bcf injection. Golden, CO-based Bentek Energy projected a storage injection of 27 Bcf. Bentek’s inventory estimates now show eight U.S. storage facilities at or above 100% full and 11 other facilities at 95% to 99% of capacity.

As of Oct. 20, working gas levels were 333 Bcf higher than the same time last year and 315 Bcf above the five-year average of 3,146 Bcf. The year-on-year storage surplus declined about 58 Bcf from the week prior and the year-on-five-year average surplus fell about 30 Bcf.

Injections were muted around the country due to colder weather and lack of storage space. The East region injected 9 Bcf for the week, while the Producing and West regions contributed 7 Bcf and 3 Bcf, respectively.

For the next two weeks there are expected to be 31% more HDDs than normal (Oct. 27) and 22% more HDDs than normal (Nov. 3). This could mean net storage withdrawals going forward, according to Smith. He’s expecting a 19 Bcf withdrawal in the storage report for the week ending Oct. 27 and a 29 Bcf withdrawal the following week.

The gas futures market anticipated the cold weather an lower injections by climbing $1.582 higher during the week that ended Oct. 20 to $7.241 from $5.659. “The gas price appears to have temporarily gotten ahead of the weather uncertainty and priced in colder weather,” Smith noted. However, last week near-month futures ended about 8.7 cents lower at $7.153. The 12 month strip slid 19.1 cents to $7.805 from $7.996 on the previous Friday.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.