The recent winter price rally was the headline-grabber, but the real news is summer 2015 contracts being sold off, possibly reflecting a forecast for a softer natural gas balance in a year, according to Goldman Sachs.

Samantha Dart and her team still expect the year-from-now summer to be softer, and they haven't changed their 2015 New York Mercantile Exchange gas price forecast of $4.00/MMBtu. However, the extended winter weather forecasts have led the team to lower end-March inventory expectations to 1 Tcf, about 200 Bcf lower than previously forecast. In early February Goldman expected storage levels to end at 1.198 Tcf (see Daily GPI, Feb. 3).

Teri Viswanath, who directs natural gas commodity strategy for BNP Paribas, told NGI on Wednesday that "based on the current weather outlook, our end March is 915 Bcf." Viswanath earlier this week said with the record storage depletion, the North American pipeline network likely would continue to encounter problems delivering gas in March (see Daily GPI, Feb. 25).

"However, unlike 2003 when the late season rally was sustained [through] the expiry, spot purchases remain somewhat anemic so far this week as a result of current mild conditions," she added. "We expect this pattern to change tomorrow as the now familiar pattern of polar intrusion from Canada reemerges."

Analysts Stefan Reville and Jan Stuart of Credit Suisse also weighed in Wednesday, revising their end-of-March forecast to 929 Bcf. "This end-March target would send the year/year storage deficit to 794 Bcf to begin April."

The revision to its inventory projection "implies the market now requires a more significant production response, likely near 1 Bcf/d during the summer, for stocks to approach 3,700 Bcf by end-October," said the Goldman analysts. The higher production response may support summer 2014 prices "modestly" above the marginal cost of production, which they estimate at $4.50/MMBtu for "key dry shale gas plays, to help speed up a response in drilling."

Current futures prices are trading near $4.80, but "further upside may be fueled by a slow response in gas rig counts," said Dart and her colleagues. "Second, the magnitude of the required production response at this stage may, in our view, temporarily lift summer 2015 contract prices to the $4.50-5.00/MMBtu range in order to allow producers to hedge appropriately and, hence, increase gas drilling more visibly this summer."

Ending March at around 1 Tcf might impact market sentiment, but it's not the threshold for a "stock out," said Goldman's team. Instead of comparing this year to 2003 weather/prices, "we would find 2001 a better choice, as its winter was colder, particularly in March." More important, "rather than looking at aggregate inventory lows, we use historical minimum operating levels by region to conclude that a broader 'stock out' threshold is likely near 700 Bcf.

"This level can still be reached if March is 43% colder than average, which we estimate is a 0.3% likelihood event. However, the persistently cold weather this season may indicate a higher risk of such an event."