The coming winter may hold promise for the natural gas bulls, but production is tracking to grow by about 19%, or 13 Bcf/d, from 2018 to 2020, leading to a bearish landscape for prices, even as demand rises for exports, power burn and the industrial sectors, according to Barclays Capital.

Analysts led by Nicholas Potter this week issued an updated price forecast for 2018-2020, predicting upside potential relative to the curve in 2018 and 2020 and significant downside risk in 2019.

“Over the medium term, we see risks weighted to the downside for prices,” analysts said. “With the exception of residential/commercial demand (driven by weather), other upside demand surprises are unlikely, given they are infrastructure-driven” for liquefied natural gas (LNG), pipelines to Mexico and industrial growth.

“These growth areas are instead more likely to disappoint expectations than overshoot,” Potter said. Forecasting prices beyond 2018 “is fraught with risks. Given the variability of prices due to weather, it is difficult to precisely quantify the effect of prices on production and vice-versa.”

More producer hedging, long-term takeaway capacity commitments and associated gas growth is leading to production growth becoming” less price sensitive.”

Overall, a high utilization of U.S. LNG facilities could be key to keeping a floor under prices later in the decade.

“If we are correct and U.S. LNG buyers look at short-run marginal costs, U.S. facilities should have high utilization,” said Potter. “If, as others are saying, exports have seasonal variability in utilization, there is further downside risk to our 2019-20 forecasts.”

Could this winter be the last running of the bulls? Over the short term, Barclays is predicting that this winter may exceed gas market expectations.

“We believe that the markets are currently not fully pricing in the probability of a colder than normal winter,” Potter said. “Higher inventory builds following Irma and Harvey, increasing production levels and two mild winters in a row may explain the conservativeness of the current winter curve.”

According to the Natural Gas Supply Association (NGSA), gas demand should reach an all-time high this winter -- but it may not help prices. The NGSA, In its 17th annual winter outlook forecast issued on Wednesday, predicted record gas demand would exceed that of the polar vortex winter of 2013-2014.

However, “surging production, Canadian imports and robust storage inventories of natural gas will ably satisfy demand, resulting in flat pressure on prices compared to last winter,” NGSA said.

AccuWeather on Wednesday also predicted a chilly winter in the Northeast and Mid-Atlantic, with above-normal snowfall versus a year ago. With a weak La Nina predicted to develop this winter, the Northwest and the Rockies also are set to receive an abundance of precipitation.

Assuming normal weather from the previous five-year average for gas-weighted heating degree days, Barclays is forecasting prices to average close to $3.27/MMBtu, which is slightly above the curve.

MDA Weather Services is predicting the period from December-March will be around 5% colder than the five-year normal and 15% colder than last year, “which implies a price of $3.46/MMBtu for the period, based on our model,” Potter said.

“We believe that the discrepancy may be driven by markets not fully discounting the probability of a cold winter, given the recent trend and being wary of faster associated gas production growth because of supportive oil prices,” he said.

Depending on the weather and pipeline start-up delays, balances could be about 2.2 Bcf/d tighter than last year, assuming a normal winter. Storage levels are expected to end in October “just shy of 3.9 Tcf, slightly above the five-year average. This is a bullish level relative to the past two years, but bearish compared with earlier estimates of 3.7 Tcf.”

Assuming a normal winter and that storage levels end in March at 1.7 Tcf, it would be the first March below the five-year average since 2015 (1.45 Tcf), Potter said.

“This should set the stage for U.S. storage inventories to stay at or below the five-year average for most of 2018, a bullish development, given the last two years of storage surplus with which the market has dealt.”

To determine U.S. gas balance forecasts for the medium term, Barclays analysts relied on production modeling by major basins and demand modeling by end-use, based on five-year average weather forecasts. The cash price forecast “is consistent with a price level that stimulates enough power demand to result in a neutral balance over the medium term.”

“We see upside in 2018 pricing relative to the curve as prompt buying interest starts to enter the market,” said Potter. Calendar (Cal) 2018 “will, in our view, be a good example of a calendar year depressed by producer selling that will eventually gain ground as prompt buying interest grows.”

Gas production is set to grow by around 6 Bcf/d year/year (y/y), but some of the weakness in Cal 18 pricing may be overdone.

“At the moment, it is priced at $3.04/MMBtu, while we see fair value given our fundamental outlook at $3.19/MMBtu,” Potter said. “So despite expectations of record y/y production growth, we see normalized storage levels helping buoy prices in 2018 relative to where the curve is currently trading.”