Analyst warns of soaring natural gas prices if we’re hit with a severe winter

At least one global energy strategist is predicting natural gas prices to spike by four times this winter.

If, there’s always an ‘if’, there is a severe cold snap. It’s the prediction of Anthony Yuen at Citi who notes gas stockpiles will end the month of October at 3,330 to 3,370 billion cubic feet. That’s the lowest level for an October month-end since 2005.

Yuen writes it could make the market vulnerable to potential winter supply disruptions. And if that happens, he says a severe cold spell could lift Henry Hub cash prices to a range of $12 to $16 per one million BTUs. Henry Hub is the major U.S. gas benchmark.

Yeun warns that if bitter cold weather hits both the U.S. and Europe at the same time, “spot LNG prices could surge to $20/MMBTU at the extreme.”

The front-month November Nymex U.S. natural gas contract finished today at $3.054 per million BTUs, up 7.4 cents, helped by expectations of a smaller-than-expected addition to gas inventories. Gas stockpiles grow at this time of year—the “shoulder” months of September and October—when weather is mild ahead of winter demand, which depletes stocks.

One reason that gas prices, while up about 6% this month, remain in the $3 per million BTU range is that U.S. gas production continues to rise, with total output in the lower 48 states rising above 83 billion cubic feet per day, up about 10% from a year ago.