With winter finally arriving after a string of eight weeks of warmer than normal weather, gas demand is on the rise but probably not enough to put a dent in the storage surplus compared to levels last year, according to experts. Withdrawals during this period last year were substantial and continue to be difficult to match.

Based on the latest weather data from the National Weather Service (NWS), Reliant Energy’s Weather Sensitive Gas Load Indices show gas consumption should be up about 21% more than normal nationally for the seven days from Dec. 29 through Jan. 4. That’s a significant change from the heating loads so far this winter. Reliant shows indices of 133 nationally during the week, up from 117 the week prior. It has 140 for the Great Lakes region, where furnaces are running full throttle because of significant lake-effect snows. (Reliant’s indices represent approximations of residential and commercial (R/C) gas consumption. They are set to equal 100 for a typical week in the heating season. A value of 110 indicates consumption was 10% higher than a typical week.)

For the week ending Dec. 22, national heating degree days were 20% warmer than normal and 37% warmer than last year. Season to date, temperatures are averaging a substantial 24% warmer than normal and 36% warmer than last year.

“With solid national heat loads this week (and the outlook for comparable conditions next), the temperature tide may have turned not a minute too late to prevent a significant imbalance between natural gas supply and demand that could have led to a short-term price collapse well below $2/MMBtu,” said Ronald J. Barone in his latest “NatGas Insight: Dust Off the Winter Coat Yet.”

Looking at the National Weather Service’s latest six- to 10-day forecast, the entire eastern half of the nation, including the major gas markets in the Midwest, Northeast and Texas Gulf Coast regions, will see below normal temperatures. A middle section of the country including much of the Rockies will see normal temperatures, and the West Coast will see above normal temperatures.

Colder temperatures should finally lead to larger withdrawals from storage, but still not large enough to put a significant dent in the existing record surplus of 1,042 Bcf compared to levels at the same time last year. Storage stands at a record seasonal weekly high of 2,980 Bcf, versus 1,938 Bcf last year and 2,493 Bcf over the prior three years.

“Despite freezing temperatures throughout several core regions this week, with holiday-related shutdowns, the lackluster economy (and the sizable next two year-ago withdrawal comparisons of 209 Bcf and 167 Bcf), we expect incremental growth in the surplus to a peak of 1.1-1.2 Tcf upon the release of the next two AGA reports,” said Barone. “Beyond this, with the outlook for colder than normal temperatures and the following three reasonable year-ago withdrawal comparisons (of 103, 90 and 128), we continue to expect that the surplus will decline in the latter two thirds of January.

“At this point, if one were to apply the average seven-year historical weekly withdrawal rate of 109 Bcf going forward, April 1, 2002 storage supplies would approximate 1,462 Bcf versus the prior seven year average of 946 Bcf,” he added. That should “keep a lid” on prices for the first half of the new year, said Barone, predicting average spot prices of about $2.28/MMBtu.

The February contract taking center stage now is “exposed to a conflicting crowd consisting of a record surplus, the weak economy, more elastic consumers, Mother Nature, declining deliverability, OPEC and power generators seeking to lock up supplies at reasonable prices,” Barone added, noting that futures prices over the next six months are virtually flat in the $2.60s and $2.70s.

Meanwhile, Baker Hughes reported Friday that the U.S. gas rig count rose by seven to 748 for the week ending Dec. 28, but was down 131 compared to the number a year ago. Total oil and gas rigs operating in North America fell by 89 to 1,085. The Canadian rotary rig count fell by 94 to 198.

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