Despite a few weeks of colder-than-normal temperatures across much of the United States, natural gas inventories are slow to drain, which has kept downward pressure on natural gas prices. According to one energy analyst, the current depression in natural gas prices is likely to continue at least into the spring.

“There has been a growing storage surplus in the face of a colder-than-normal winter to date and this negative trend continues to push gas prices lower,” said Stephen Smith of Stephen Smith Energy Associates in the firm’s latest Weekly Gas Outlook.

Under a “base case” price outlook scenario through March 2009, Smith said the projected natural gas storage level as of April 3 will be 1,796 Bcf, “which would represent a surplus of 908 Bcf versus 10-year storage norms (as compared with a 345 Bcf surplus one year earlier). In this environment we estimate a late March 2009 gas-to-[residual fuel) spread in the range of minus $2/MMBtu to minus $1/MMBtu.”

Assuming a New York Harbor 1% resid price of $6/MMBtu for late March would imply a likely April Henry Hub bidweek price range of $4-5/MMBtu (midpoint = $4.50/MMBtu), he added.

Looking at the storage report for the week ended Jan. 23, Smith said his preliminary expectation is for a 175 Bcf withdrawal to be revealed when the Energy Information Administration releases its data at 10:30 a.m. EST on Thursday.

“Storage is projected to decrease from 2,560 Bcf to 2,385 Bcf,” Smith said. “This compares with a normal seasonal draw of 145 Bcf (based on 1994-2003 norms). The net effect is a 30 Bcf decrease in the storage surplus vs. 10-year norms, from 606 Bcf to 576 Bcf (vs. a surplus of 494 Bcf one year ago).”

If recent history is any predictor, it is going to take a very large withdrawal in order to ignite any bullish market action. After it was reported last week that a healthy 176 Bcf was withdrawn from underground stores for the week ended Jan. 16, February natural gas futures fell to a new low at the time for this downtrend of $4.432. The bearish reaction left more than one trader scratching their heads for an explanation (see Daily GPI, Jan. 26).

The number revealed Thursday will be compared to last year’s 240 Bcf draw for the similar week and the five-year average pull of 184 Bcf.

Smith added that liquefied natural gas (LNG) imports likely won’t help the gas surplus equation this year. “Much lower oil prices and the prospect for a global economic recession are likely to lead to a surplus of LNG in global markets during 2009,” Smith said. “As a result, we expect U.S. LNG imports in 2009 to increase from the extremely low levels of 2008. There have been early indications of this possible upturn with the 2-plus Bcf/d sendout on the coldest days of the last few weeks (despite near $5 gas).”

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