Harsh winter weather, as well as routine U.S. nuclear plant maintenance exacerbated by Japan’s plant outages, have lifted U.S. natural gas markets but it’s not expected to last through the year, analysts said last week.

Raymond James & Associates Inc. analyst J. Marshall Adkins and his team last week said they would maintain a bearish outlook on domestic gas markets for 2011 because of a “belief that U.S. core supply growth will continue to overwhelm storage limits.”

The analysts in mid-May predicted that domestic gas supplies would be up by an average 4-5 Bcf/d y/y in 2011, which could cause prices to drop this summer (see NGI, May 23).

Raymond James’ 2011 forecast for U.S. gas prices continues to average $3.75/Mcf, even though analysts acknowledged that prices “have remained resiliently” above their earlier predictions.

Particularly cold winter weather was blamed for the bump in gas prices earlier this year. As winter weather eased in April the market again was “looser,” with an additional estimated supply of 2 Bcf/d on a y/y basis. Soon thereafter, however, “the market completely flipped” to 1 Bcf/d tighter, Adkins and his colleagues noted.

Why? The “culprit” appears to be the “sugar high” from domestic and Japanese nuclear outages, said the team.

The U.S. nuclear grid routinely undergoes seasonal maintenance every shoulder season, and natural gas power often fills the void, they noted. This year, however, the domestic grid was scheduled for a larger seasonal downturn, which was “likely exacerbated by the nuclear disaster in Japan.”

In addition, the U.S. nuclear fleet was undergoing planned maintenance when massive tornadoes swept through Alabama, damaging two units at Browns Ferry Nuclear Plant (see Daily GPI, May 2).

Twenty-eight percent of the U.S. nuclear fleet already was down. The two Browns Ferry units were two of 42 plants that were either offline or producing at less than 100% of full power, according to NGI‘s NRC Power Reactor Status Report. The 42 plants’ generation represented a loss of 28,250 MW out of total U.S. capacity of 98,564 MW at 104 facilities.

According to the Raymond James team, most of the domestic nuclear capacity “should be back online by July,” which would wipe out the 3 Bcf/d of y/y gas supplies that loosened the gas market earlier this year.

“If we’re right,” they asked, “are we headed for yet another late-summer collapse once the nuclear buzz wears off?”

Likewise, Deutsche Bank’s Adam Sieminski isn’t impressed by the recent uptick in prices. He said investors “appear to be ignoring the bearish news from March in favor of a belief that production ultimately will be curtailed by the continuing shift of equipment and personnel away from gas toward oil.

“We agree with this sentiment, while still harboring some concern that normal temperatures in July and August and a flat spot in industrial demand could weigh on prices.”

The Energy Information Administration last week reported a domestic gas storage build of 83 Bcf, which puts gas in storage at 2,107 Bcf, “the middle of the historic range,” Sieminski noted.

“This shifts the implied supply demand balance to minus 1.13 Bcf/d, a significant correction” from the plus 1.10 Bcf/d reported a week earlier (May 26). “In our view, June data is likely to prove more bullish than bearish. However, once June heat goes away (in our forecast), we expect that ample supply will put downward pressure on prices ahead of winter.”

The Deutsche Bank analyst said a “reasonable case can be made in the medium-term (18 months) for more demand, less supply and a bullishly low storage number at the end of 2012.”

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