Natural-gas output’s set to slow as demand picks up Winter demand for natural gas has ended, but the fuel’s prospects for a price rally are just beginning. The U.S. natural-gas market has seen enough supply over the past year to “greatly reduce” the large storage deficit that followed last year, but there has also been enough cold weather to keep storage levels slightly below the five-year average, Tim Evans, energy futures specialist at Citi Futures, said in a weekly report issued Monday. Natural-gas inventories as of March 31, which marks the traditional end of the heating season, stood at 1.47 trillion cubic feet — 180 billion cubic feet, or 11%, lower than the five-year average, according to the Energy Information Administration. U.S. Energy Information Administration Evans said that the deficit suggests that “it may not take that much of a shift in the underlying fundamentals, or the way those fundamentals are perceived, to send the [natural-gas] market higher again.” For now, based on current weather forecasts, the market could be looking at above-average storage increases through at least the end of April, so Evans isn’t willing to rule out further price declines. But that fundamental shift he mentioned could come in the form of a slowdown in production and a rise in demand. With overall U.S. drilling activity down sharply due to the drop in oil and natural-gas prices, year-on-year growth in natural-gas output may decline over the course of this year, said Evans. Futures prices for natural gas NGK15, +0.75% dropped 31% in 2014 and have already lost roughly 13% year to date. The weekly number of active rigs drilling for oil and natural gas had fallen by 40 to 988 as of Friday, according to data from Baker Hughes BHI, +0.16% That’s down 843 from last year. The steep drop in drilling activity also comes as demand for natural gas is on the rise. Natural-gas fired power plants used 3.5 billion to 4.0 billion cubic feet more natural gas during February and March than a year ago, said Evans. With some coal-fired power plants set for retirement this year, natural gas may “pick up some more permanent market share in the power sector,” he said. A warmer-than-normal summer may also boost cooling demand — and the added consumption of natural gas would help limit any increases in storage levels, he said. Evans didn’t offer a specific price outlook, but some analysts have said they expect to see natural-gas prices hit $4 per million British thermal units this year. Oil and gas entrepreneur T. Boone Pickens told CNBC last month that the market will see $6 again, but didn’t say when. Myra Saefong