With expectations rising for a projected natural gas storage surplus of nearly 600 Bcf (versus 10-year norms) by late April, the gas-to-resid spread should range between minus 50 cents/MMBtu to plus $1.00, implying a “likely” May Henry Hub bidweek price of $5.75-7.25/MMBtu, according to Stephen Smith Energy Associates.

In a report last week, Smith analysts said the bidweek price estimate assumes a $50-65/bbl West Texas Intermediate crude oil price for “several” months, private weather service projections of heating degree days (HDD) through March 30 and near 10-year norms for HDDs thereafter. On March 30, 2006, the report noted that the gas-to-resid spread of minus-$1.00/MMBtu corresponded to a storage surplus of 800 Bcf.

“The past winter has been one of streaks,” the report noted. “Until early November, HDDs were near-normal. Then, through Jan. 12, with the exception of one week, HDDs were generally well below normal and the storage surplus increased to near 900 Bcf. This was followed by eight weeks which were normal or colder, which reduced the surplus to near 500 Bcf. Finally, including projections through the end of March, there are likely to be three weeks of normal or below-normal HDDs.”

The final three weeks of March will result in “what had been a near-500-Bcf surplus versus 10-year norms back to the 600 Bcf surplus neighborhood and to move our price outlook down a bit.” Analysts are projecting a 1,495 Bcf storage level for the end of March, up from an estimate of 1,440 Bcf two weeks ago.

Smith’s gas supply/demand model had projected a storage build of 8 Bcf for the week ending March 16, with projected storage increasing to 1,524 Bcf from 1,516 Bcf. The Energy Information Administration Thursday report that 17 Bcf was injected during the week that ended March 16 — the first ever during this week of March. The closest the industry has come to seeing an injection during this part of March occurred during the week ended March 21, 2003 when 6 Bcf was injected.

©Copyright 2007Intelligence 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.