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 issued Monday, the 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 last week.

Smith's gas supply/demand model projects 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 projected build compares with a normal seasonal draw of 65 Bcf (based on 1994-2003 norms). An 8 Bcf build versus the 65 Bcf draw would imply that seasonal storage versus 10-year norms will increase by 73 Bcf to 590 Bcf, versus a surplus of 882 Bcf for the same period of 2006, analysts noted.

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