With natural gas prices at 10-year lows thanks to an extremely mild winter and robust production from U.S. shale gas basins, natural gas price bulls have been cooling their heels for months, not days. However, as producers lay down gas rigs or redirect them to more liquids-rich plays, analysts are eager to pinpoint a date on the calendar when the cuts to drilling will translate into a tighter supply/demand balance, thus giving prices a floor and the ability to rebound.

Down-days in the futures and cash markets have become common with a bounty of gas still socked away in storage and a number of regions of the country making it through winter relatively unscathed. On Jan. 23, front-month natural gas futures on the New York Mercantile Exchange reached a low of $2.231/Mcf. The last time a front-month contract traded lower was nearly 10 years ago — on Feb. 15, 2002, when the March 2002 contract reached a low of $2.147. Currently, April futures are threatening the low recorded in January.

Producers are responding with shut ins and rig management. The rig count dropped across the board for the week ending March 9, and the gas-directed rig count slid by 21 to 670, its lowest since July 2009, oil field services firm Baker Hughes reported. A 10-year low is almost within reach. The current gas rig count is only 30 rigs away from the 640 operating in May 2002.

Noting that the gas rig count has declined by 264 rigs (28%) in the last 21 weeks, Stephen Smith of Stephen Smith Energy Associates believes a decline in current production is right around the corner.

“Including the last two forecast weeks, the degree-day total for the 27-week period ending March 23 was 16% lower than normal,” Smith said in his Weekly Gas Outlook on Monday. “This explains much of the recent surge in the storage surplus. But the most important trend of the last 18 months, however, is that Lower 48 onshore gross gas production has been routinely running 5.0-6.5 Bcf/d higher than year-ago levels, which is clearly unsustainable.

“In response to the resulting price collapse, the horizontal gas rig count has now declined by about 31% from its mid-October peak. This is likely to result in lower-than-current production capacity by the second half of 2Q2012,” he said. According to Baker Hughes, horizontal rigs for the week ending March 9 fell by six to 1,164, still greater than the 981 in operation a year earlier.

While production declines are surely on their way, it will take months, if not years, to balance the off-kilter supply/demand equation. According to the Energy Information Administration, working gas in storage following the most recent draw of 80 Bcf, stands at 2,433 Bcf, which is a whopping 739 Bcf higher than last year at this time and 792 Bcf above the five-year average of 1,641 Bcf.

Smith said his weekly gas supply/demand model is projecting a 55 Bcf storage draw for the week ending March 9, which would continue to build the current surplus over historical comparisons. The number, to be released Thursday morning, will be compared to last year’s withdrawal of 60 Bcf for the week and the five-year average of a 78 Bcf pull.

Mother nature is not helping gas price bulls. Following one of the warmer winters on record, it appears as if summer temperatures may infringe upon spring. However, even with forecasters calling for very warm temperatures for much of the country this week, Citi Futures perspective analyst Tim Evans warned that it might not be a completely bearish event.

He noted that the weather ahead “looks remarkable, with temperatures that could be 20 degrees Fahrenheit or more above the norm, and new records possible for the Plains and Midwest in particular. Although the main effect will be to choke off heating demand, there may be some cooling demand created as well.” For this reason, Evans said the next couple of storage reports will be tricky to call. His preliminary estimate for the report for the week ending March 9 is for a 59 Bcf withdrawal.

Using recent storage flows and degree day forecasts, Evans sees the year-on-five-year storage surplus blossoming to 871 Bcf as of March 23, with no reason to stop its growth there. “While a rising surplus doesn’t always result in new lows in price, it does represent a downward fundamental pressure that could well translate into fresh 10-year lows.”

Evans did note that a plummeting rig count points to lower production and support for prices in the future, but the question is on the timing. “We think the decline will be more gradual and the support [will] materialize somewhat later than the bulls would like to see,” said Evans. “We’re thinking the turning point could come in the second half of the year, not the second half of March.”

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