A change in the way the National Oceanic Atmospheric Administration (NOAA) calculates population-weighted temperatures (or degree days) for natural gas consumption has given the gas price bears reason to believe U.S. gas prices will fall back to $4/Mcf or lower, but Raymond James analysts counter that demand trends suggest that regardless of the weather, the United States is likely to end next winter at the low end of the historical range for gas storage.

In the latest “Stat of the Week,” analysts R. Marshall Adkins and James Rollyson said they “remain convinced…that we are in a $5/Mcf plus natural gas world for the next several years.”

The NOAA recently changed the method to calculate degree days and now incorporate the 2000 census data rather than the 1990 data for temperatures back to Aug. 1, 2002. With the revised data, last winter would appear 1.2% colder than normal rather than 3.5% warmer than normal.

“Does that seem odd to anyone since most of last winter’s cold weather was in the same regions that have seen the least population growth?” asked the analysts. The data revision is “totally irrelevant to next winter’s gas story. Practically, the new numbers only mean that we now do not have any meaningful ‘apples to apples’ temperature comparisons going forward.”

More important, they said, the year-over-year trend indicates that “under just about any weather scenario, the analysis shows it should be a very tight gas market through next winter,” with a “very high probability (95%) that gas storage in the winter of 2003/04 will still end at the lower end of the historical range.”

Despite an increase in gas drilling, Raymond James’ analysts remain convinced that the net U.S. gas supply is likely to decline by another 2%, or 1 Bcf/d next winter. With its $6 gas price forecast for next winter, “only modestly higher than last year’s gas price average,” they noted that the country is not likely to see any “significant” change in year-over-year industrial-related demand or fuel switching related gas demand.

Since last winter measures 1.2% colder than normal, “a return to normal weather would only remove 60 Bcf of demand relative to last winter’s temperatures. Even if we factor in a 6.5% warmer-than-normal winter weather scenario (or the 95% probability point…), the winter-over-winter demand would fall by only 375 Bcf (or 2.5 Bcf/d).”

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