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Could Raymond James Be More Bullish? Not Likely

Could Raymond James Be More Bullish? Not Likely

The gas bulls are firmly entrenched at the St. Petersburg, FL offices of Raymond James & Associates. The group put out a report last week projecting either the loss of 5 Bcf/d of gas demand this winter due to soaring gas prices or an "impossible" negative balance of working gas in storage at the end of the winter heating season, given normal temperatures this winter.

"In our normal winter case, year-to-year winter demand should increase by a whopping 9.3 Bcf/d, or about 1,400 Bcf for the entire five month winter heating season. The key driver here is that exceptionally warm winters for the past four winters have masked the strong economic growth that has occurred in the U.S. over the past five years."

Raymond James analysts noted that temperatures so far this winter have been 17% below normal and the National Weather Service is predicting more of the same for the next couple weeks. Raymond James expected a 122 Bcf withdrawal to be reported by the American Gas Association last Wednesday for the previous week's storage activity despite the holiday, but that rather high number turned out to be a little lower than what AGA ended up reporting. The weekly withdrawal came in at 146 Bcf, the largest weekly withdrawal ever reported by AGA for a week in November. Working gas levels are not nearly 500 Bcf behind levels at the same time last year and nearly 300 Bcf behind the five-year average.

"Even if the rest of the winter is 14% warmer than normal, we are now likely to end up with less than 900 Bcf in storage at the end of the winter," said Raymond James. "If the rest of the winter is normal, the theoretical storage deficit should grow to a negative 293 Bcf."

Raymond James analysts admitted it's impossible to reach such a level. "History has shown that not only is this highly unlikely, but the gas distribution system begins to run into significant problems when gas storage levels fall below 600 Bcf in storage."

The last time that happened was the 1995-96 heating season when gas prices went through the roof, and Raymond James predicts that will occur again this winter. "In other words, gas prices must continue to rise sufficiently to drive as much as 5 Bcf/d of demand out of U.S. gas markets. What is that price? We have no idea but it is safe to assume that price will be somewhere higher than $5 and likely somewhere less than $50/Mcf."

Rocco Canonica

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