The apparent tightening in the gas market, combined with strong heating demand and the related strong storage draw in the past few weeks have set the stage for higher natural gas prices, at least into early next year, according to Lehman Brothers analyst Thomas Driscoll.

Commenting on the storage report issued Friday by the Energy Information Agency, Driscoll noted that storage withdrawals have averaged 4.7 Bcf/d higher than the five-year average over the past four weeks, despite higher gas prices. Storage withdrawals for the week ending Dec. 20 were 13.6 Bcf/d versus 16.9 Bcf/d for the same period of 2001 and the five-year average of 11.4 Bcf/d. To date (since Nov. 1, 2002, based on heating degree days), the season has been 31.3% colder than last year and 2.1% warmer than normal, said Driscoll.

“We estimate that next week’s storage report [week ending Dec. 27] will show a withdrawal of roughly 150 Bcf versus 126 Bcf one year ago and the five-year average of 151 Bcf,” said Driscoll. Actual degree days are released on Dec. 30, and Driscoll said an adjustment will then be made.

“We expect the storage deficit versus the five-year average to decrease from 113 Bcf as of Dec. 20…to a deficit of 112 Bcf (estimated withdrawal of 150 Bcf versus a five-year average of 151 Bcf) for the week ended Dec. 27.” The year-over-year storage deficit is estimated to increase from 575 Bcf to a deficit of 599 Bcf for the Dec. 27 week.

“Without the more severe weather, storage withdrawals would have been 13.4 Bcf/d, roughly 4.7 Bcf/d stronger than the five-year average,” said Driscoll. “Over the past four weeks, heating and cooling demand combined increased natural gas demand by an estimated 3.4 Bcf/d.” He estimated that heating demand increased by 3.6 Bcf/d.

By the next storage report, Driscoll estimates that inventory levels stand at 2,390 Bcf, 599 Bcf lower than last year and 112 Bcf less than the five-year average. “We base our injection forecast on the NOAA estimated heating degree days of 199 versus 213 last year, 212 normally, and the five-year average of 227. ”

Said Driscoll, “Although we cannot argue with certainty that the entire decrease is related to utility plant operation, we are comforted by the recurring pattern. Natural gas availability has declined 5 Bcf/d more than expected since [last] winter ended. The 7 Bcf/d decline in natural gas availability since the end of winter compares with a normal seasonal decline of 2 Bcf/d by the end of November.”

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