In stark contrast to outlooks released by Salomon Smith Barney and Lehman Brothers last week that predicted natural gas storage would refill at a record pace during the 2001 filling season, UBS Warburg said it would be a challenge for the industry to refill storage to the 2,800 Bcf mark by November (see Daily GPI, April 5; April 6).

Working gas levels ended the traditional heating season last week near record lows at 627 Bcf or about 19% full, and 404 Bcf lower than at the same time last year. In a research note, UBS Warburg’s Ronald Barone said his calculations suggest a “tall order” refill task ahead. By his tally, the industry would need to inject 71 Bcf per week in order to reach the 2,800 Bcf mark (85% full) by November, compared with the 56 Bcf average rate in 2000, and 62 Bcf over the past six years.

“While the task of injecting 71 Bcf per week is not impossible (as suggested by the aggressive near-term demand destruction calls by some of our peers this week), we believe it is unrealistic,” Barone said, referring to the Lehman Brothers’ report last week, which speculated that the significant loss of demand this winter because of high gas prices would leave plenty of supply available for injections this spring and summer.

Barone believes a strong refill is unlikely for a variety of reasons: significant near-term nuclear shutdowns, feeble western hydro conditions, high western gas-fired power utilization, the arrival of new gas-fired generation nationwide, limited increases in U.S. deliverability and a weather outlook calling for warmer than normal Southeast and Western temperatures. Due to these factors, UBS Warburg said it is keeping its price forecast at $5.75/MMBtu, but warned that its 2002 forecast could be increased from its $3.75 level in the near-term.

UBS Warburg said considering the moderation in temperatures last week, and the fact that there was a 2 Bcf injection last year for the same time period, the company expects a “limited change” in the deficit after this week’s announcement.

The group also added that in March the average natural gas rig counts reached a new all-time high of 913, eclipsing the previous record average of 898 set during February 2001. The March 2000 and March 1999 averages were 599 and 412, respectively.

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