Many industry analysts have been steadily raising their gasprice forecasts because of the year-long drilling slump and itspotential impact on gas deliverability next winter, but St.Petersburg, FL-based Raymond James & Associates went out on alimb this week predicting sharp price spikes above $10/Mcf at theHenry Hub this winter and an average of $3/Mcf at the hub nextyear.

“Given that we think there is a significant potential for spotnatural gas shortages next winter (winter of 99/2000), we believethere is substantial potential for U.S. natural gas prices totemporarily move into the double-digit range,” Raymond James energyanalyst J. Marshall Adkins said in a report released Monday.”Perhaps more importantly, this kind of supply shock would likelyawaken the natural gas markets to the true underlying gas supplyand demand fundamentals. Such an awakening should drive average2000 natural gas prices well above levels we have seen in the past.We believe that once the U.S. gas markets receive their wake-upcall this winter, average gas prices above $3/Mcf in 2000 are veryrealistic.”

Adkins notes that simply a return to normal temperatures nextwinter will boost gas demand 8% compared to last winter. Meanwhilea conservative prediction on gas supply this winter shows at leasta 2% drop, or about 1.2 Bcf/d. Some producers, such as Enron Oil& Gas Chairman Forrest Hogland, are expecting much largerdeclines of up to 3 Bcf/d.

With strong demand and short supply (even including a 5% rise inimports from Canada), the existing storage surplus will be depletedrapidly. “Our numbers suggest that we will exit the winter settingall-time record lows for natural gas storage.” Raymond James ispredicting storage will end the winter with 270 Bcf of working gas,a historic low which would be difficult to reach.

There’s a 70% probability storage will end the winter heatingseason below 700 Bcf and “history suggests that ending storagebelow 700 Bcf should result in $10/Mcf or higher gas prices,” thegroup’s report stated.

“What if our base case is wrong” Raymond James asks, and wintertemperatures are 5% warmer than normal? Gas storage still would endthe winter below 700 Bcf. Given the incomprehensible possibilitythat winter temperatures could be 5% colder than normal, RaymondJames said there would be a need to draw down storage to negative141 Bcf of working gas by March 31. “In either case, we have aproblem.”

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