Analyst says US gas storage surplus is likely to be short-lived

Washington (Platts)--11Dec2006

The US natural gas storage surplus will increase during the remainder of
December before shrinking again in January and February, Raymond James energy
analyst Marshall Adkins said Monday, warning clients to avoid getting caught
in what he called the "gas bear trap."

"Given the extremely tough upcoming three-week weather comparisons from
last year, we should see the year-over-year gas storage surplus grow, possibly
putting downward pressure on both natural gas prices and gas-weighted stocks,"
Adkins said.

Adkins added that he expects the current 232 Bcf year-over-year storage
surplus to grow by another 100 to 200 Bcf in the next three weeks. After that,
Adkins predicted that the roughly 350 Bcf surplus will reverse itself to a 300
Bcf deficit by February.

He reiterated his prediction that gas well be selling for an average
$10/MMBtu in the first quarter of 2007, well above the $7.36/MMBtu the NYMEX
January contract was selling for in mid-day trading.

Noting that last year's warm winter ended with 1,694 Bcf in storage,
Adkins predicted that following a more normal winter, gas will end the heating
season with 1,250 Bcf in the ground.

But the deceptively bearish news gives buyers an opportunity to snap up
cheap gas as the market follows the deceptive numbers until January when the
weather turns colder and gas consumption begins in earnest, Adkins said.

"If the market loses sight of the forest for the trees, investors will
make money when the forest reappears," Adkins said. "We think the market
should be smart enough to look past this short-term build of year-over-year
gas inventories; however the market never seems to act as intelligently as we
think it should."

--Bill Holland, bill_holland@platts.com

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