Raymond James’ energy analysts said there is the potential for several energy surprises this year, events that conventional wisdom considers unlikely. However, the market may be “significantly underestimating” the likelihood of some, including their belief that winter natural gas storage will fall below 1,000 Bcf — even without an abnormally cold winter.

In the latest Stat of the Week, analysts J. Marshall Adkins and James Rollyson said they believe that consensus expectations for winter ending gas storage (March 31) is somewhere between 1,200-1,600 Bcf. “Given the large speculative short position in the natural gas markets, it is clear that more and more investors are buying into the belief that this relatively high level of gas storage will cause U.S. natural gas prices to fall further from current levels. We believe the gas storage will end much lower than consensus expectations.”

On a weather-adjusted basis, they said, gas markets are now 2 Bcf/d tighter than a year ago. “If we extrapolate 2 Bcf/d tighter over the reminder of the heating season (and assume normal temperatures), the math says March 31 gas storage is likely to fall to 1,000 Bcf or lower. This would be a big signal that the market is still short gas and very bullish for gas prices and energy stocks.”

Among their other possible energy surprises, Adkins and Rollyson said it is possible that an integrated producer will buy an independent “for its people, not the assets.” They noted that the “graying of the oil patch has been a real issue for decades. As the current geoscientists approach retirement, their ranks are not being fully replenished with new heirs.”

This, they said, “sets up an interesting possibility: What if one of the integrated majors acquired an exploration and production (E&P) company in large part for its pool of talented professionals? Historically, the appeal of E&Ps was primarily due to their high-potential assets. But if the shortage of petroleum engineers gets worse, we may see that as a key driver of future merger and acquisition activity.”

On the bearish side, the analysts said it was possible that Petroleos Mexicanos (Pemex) may lay off a “large” number of rigs this year. “The Gulf of Mexico jackup market has improved dramatically in the past three years, due primarily to a mass exodus of rigs out of the region. Mexico’s national oil company, Pemex, has been responsible for the largest drain on Gulf of Mexico jackup supply during this period.

“However, nearly half of the jackups in Mexico have contracts that expire in 2005, which could create a problem for the Gulf of Mexico market if Pemex chooses to release many of these rigs. It is no secret that Pemex has had some difficulty digesting all of the rigs it has absorbed, mainly due to labor shortage issues and governmental bureaucracy. In fact, the market has already factored in the likelihood of a few rigs being released.”

Pemex is expected to announce its 2005 drilling plans this month, and “if they lay down more than a few, then look out.”

The analysts also believe that nuclear power could re-emerge on a global scale this year. “With the rising cost of fossil fuels, nuclear power is again being discussed as a viable alternative, with 25 units under construction worldwide and even one company seeking potential permit approval for a U.S. site. While it would take years to build, 2005 could mark the re-emergence of nuclear plant construction on a global scale that would pose a bearish threat to fossil fuel consumption growth.”

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