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Winter gas market outlook sees little chance of widespread price spikes


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Winter gas market outlook sees little chance of widespread price spikes

Only an extended cold snap would materially drive up naturalgas demand and prices this coming winter, the Natural Gas Supply Associationsaid Oct. 5 in its winter outlook.

Prices should be higher than the unusually low levels ofwinter 2015-2016, and natural gas demand could hit a record as economic growth,customer additions and power generation drive consumption, according to NGSA.But an anticipated near-record amount of natural gas in storage, combined withproducer flexibility should keep the market stable. Overall demand is expectedto average 92.3 Bcf/d, according to the outlook.

In addition to domestic use, exports of gas are forecast torise, too. LNG exports and gas exports to Mexico are expected to each grow byroughly 800 MMcf/d compared to the preceding year. The uptick will scarcelymove the needle, however, when it comes to the bigger supply and demand picturefor the nation.

Any rise in demand likely could be met easily by bringingsome of the many drilled-but-uncompleted wells online, Bill Green, NGSA'schairman and Devon EnergyCorp.'s vice president of downstream marketing, said at aWashington, D.C., news conference.

The weather, however, is as always a "wild card,"Green said.

"If you had an extremely cold winter, or a polarvortex, one after [another] … you might have some issues. I don't see any pricespikes where you'd see [on the] overall system $20 or $10 [prices]. I thinkthose days are gone," Green said. "I'd say [for] 90% or 99% of thesystem, with just normal weather, outside of any operational issues, I justdon't see any spikes like we used to see years ago where it'd get up to $25 or$50."

Producers looking to the winter for upward pressure on gasprices may also recall the overall absence of cold weather during winter2015-2016, which the National Oceanic and Atmospheric Administration said wasthe warmest on record for the contiguous U.S.

As has been the case in the past, the is among the most vulnerableregions when it comes to potential price spikes. Multiple project proposals to bring moregas to the region have been stymied in the recent past, although Green said hesuspects it is just a matter of time before the push from producers and thepull from consumers in the Northeast result in more infrastructure being built.

On the opposite side of the Lower 48, southern California isthe other region that appears most vulnerable going into winter, as the state'slargest natural gas storage field, Aliso Canyon, remains out of service. Greenpointed to regulators' and utilities' success at keeping the lights on andburner tips lit during the summer months, saying that the region appears wellprepared to manage prospective constraints.

Even without a major upswing in prices nationally, theproduction sector is better off now than it was even half a year ago, Greensaid. Henry Hub prices, for example, rallied from below $2/Mcf inMay to more than $3/Mcf in late September.

"The industry has suffered a lot from the first quarterto today. I think everybody's a little healthier today than it was six to eightmonths ago," Green said. "We're encouraged by what OPEC has done andlifted prices, but that doesn't mean we're out of the woods yet. There's anawful lot of production out there on both oil and gas."