Thanks to colder-than-normal winter weather, which sucked up some excess natural gas supplies, Raymond James & Associates Inc. has lifted 2011 gas price forecasts by 50 cents to $4.25/Mcf.

Analyst J. Marshall Adkins and his colleagues had predicted 2011 gas prices would average $4.25 but cut the forecast to $3.75 early this year because of strong production numbers (see NGI, Jan. 10).

“Even though U.S. gas supply has, in fact, grown at a record pace this year, increased weather-related gas demand has temporarily offset the supply growth,” wrote Adkins. “Between the U.S. and Canada, we estimate that colder than normal weather this past winter consumed 500 Bcf more gas (or 2.5 Bcf/d) than expected. Thanks to the weather, summer-ending gas storage may now end slightly below last year rather than oversupplied by more than 400 Bcf.”

The analysts said their 2011 gas price forecast went sideways despite a “huge” gas supply increase — which they estimate is more than 4 Bcf/d year/year to date.

“So, what did we miss? Simply put, it was extremely cold in North America,” said Adkins and his team. “We believe the frigid weather resulted in an extra 500 Bcf, or about 2.5 Bcf/d from November-May, of natural gas demand above and beyond normal weather and our estimates.”

According to Raymond James, winter weather accounted for an incremental 370 Bcf of demand in the United States and 130 Bcf of demand in Canada. U.S. gas storage closed the winter at 1.6 Tcf, which is “nearly 200 Bcf below our original 1.8 Tcf forecast.” Into April and May the extreme weather continued, which was quickly replaced by a record heat wave in June. “Thus far this summer we’ve experienced another 150 Bcf more weather than normal.”

However, 2012’s gas outlook “remains ugly,” said Adkins. Annual domestic gas supply growth of 4 Bcf/d, or 6%, “is now looking more and more like a floor than a ceiling.”

Raymond James’ 2012 gas storage model now “suggests 4.35 Tcf of summer-ending gas inventories. Unfortunately, we have less than 4 Tcf of storage capacity. That means gas prices will need to be low enough to encourage shut-ins or more coal-to-gas switching. Either way, it points to depressed gas prices next year.”

Next year’s gas prices are expected to average $4.25/Mcf, which is below consensus expectations of $5.33/Mcf for Henry Hub Bloomberg forecasts, and the New York Mercantile Exchange futures strip, which is $4.81. There also could be “more downside — as low as $3.50/Mcf — than upside to our 2012 gas price estimate.”

In a note to clients Goldman Sachs analysts also said they expect gas prices to average $4.25/Mcf through 2012 as gas supplies grow by about 2.9 Bcf/d this year and another 1.2 Bcf/d in 2012.

A combination of coal plant retirements and higher industrial demand, supported by possible delays in nuclear power plant construction and license renewals, should erode the oversupply in gas after the coming year, said analysts.

“We believe that U.S. natural gas prices will likely be supported above the $6/Mcf range from 2015 onward,” the Goldman Sachs team said in a note.

Societe Generale equity research analysts also don’t expect gas prices to gain much strength over the coming year but they see a bit of a bump, with 2011 prices now expected to average $4.30/Mcf, which is up from their earlier forecast of $4.15. In 2012 gas prices now are forecast to average $5/Mcf, which is above some analysts but still below Wall Street’s consensus of $5.33.

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