A less than 20% chance exists that this winter will be warm enough to cause U.S. natural gas prices to fall significantly below $4.50/Mcf, and more likely a 30% chance that prices will spike even higher than an expected average of $4.50-$6.50/Mcf, Raymond James analysts noted in the latest “Stat of the Week.”

Analysts J. Marshall Adkins and James M. Rollyson conducted a statistical analysis of the past few years’ winters and found that in a small sample, nearly three quarters of the winters were warmer than normal, which led many to belive that last year’s colder weather “was some type of freak cold winter.” However, the “facts actually show that on a population-weighted basis, last year’s winter ended up only 1.2% colder than normal. This was far less than on standard deviation from normal.”

The odds that this winter would be warm enough to cause a “gas problem,” said analysts, assumes a 4% warmer than normal winter, and “would be warmer than 83% of all winters since the turn of last century.” The 13%-plus warmer than normal winter in 2001-2002 and the warm 1999-2000 winter “was off the charts relative to the historical average.”

Using year-over-year estimates, at the end of a normal winter season, storage would be about 300 Bcf “short of the comfort zone,” they said, and gas prices “would likely rise well above $6/Mcf to kill more demand.” A 4% warmer than normal winter would result in storage ending “well within the 700-800 Bcf comfort zone.”

The analysts noted that they expect U.S. gas supply “will continue to fall at a 2% (1 Bcf/d) year-over-year pace” through the winter. “Unlike the past cycle, we do not foresee the same magnitude of a production response from higher drilling activity, given the one-time gas cap blow-downs and lower production declines that occurred back then. Additionally, since some of the largest producers (i.e., the majors) are not stepping up drilling activity levels in North America, they are likely to experience continued production declines.”

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