Despite frigid weather that prompted record U.S. natural gas draws, gas prices are likely to remain relatively subdued, reflecting the view that production can crank up to meet any demand, The Goldman Sachs Group, Inc. (NYSE: GS) analyst Samantha Dart said in a report.

Even production freeze-offs that caused supply losses due to extreme low temperatures across the country were offset to pipeline imports from Canada, Dart said.

Taking into account current weather forecasts through Jan. 31, the overall impact of weather deviations on inventory draws will add up to almost 600 billion cubic feet (Bcf), assuming normal weather in February and March. That would be 228 Bcf beyond Goldman estimates from mid-December. However, low end predictions for March inventory would eliminate the need for any price-induced coal-to-gas substitution in the summer.

“Although we believe this scenario would be consistent with a gas price level higher than our current $4.25 per million Btu (MMBtu) forecast for 2014, and likely closer to $4.40-4.50/MMBtu, we prefer to hold off on changing our associated natural gas price forecast for now, given the weather uncertainty for the remainder of the winter,” Dart said.

Even with the major impact of weather so far this winter, inventories are still far from a “stock-out” event, she said.

“It would take a rather steep drop in overall U.S. inventory levels to generate a spike in Nymex natural gas prices to oil price levels at $15/MMBtu or higher, with the inventory threshold for such a price response likely below 1,100 Bcf,” Dart said.

Just how likely? Goldman Sachs worked out probabilities based on historical data.

Weather impact on gas inventories

March

inventory

scenarios (Bcf)

Required

deviation from Feb-Mar

10-yr average

Probability of sufficient

weather event

1,388*

0

1,300

54

32%

1,250

84

24%

1,200

114

16%

1,150

145

11%

1,100

175

7%

1,000

236

2%

900

297

1%

Source: Goldman * March expectation

But additional weather shocks in the February-March period could push inventory levels down to a point where a more significant increase in production is required during the summer.

Ending winter at 1,100 Bcf would still lead to sustainably higher prices during the summer. Prices would rise, at a minimum, to the $4.50-$5.00/MMBtu – and potentially above, depending on how long it would take for gas rig counts to increase from current levels.

Getting to those prices could still prove to be difficult.

Growing supply and storage capacity has made for more flexibility in the gas system. In addition to surges in production, U.S. gas storage capacity has increased more than 700 Bcf since the 2002/2003 winter.

Lower volatility in Henry Hub cash prices relative to Nymex natural gas also suggests a more flexible system with lower deliverability risks.

“We believe 1.2 Bcf/d of additional production growth beyond what we currently expect would be required to restore inventories to comfortable levels by October 2014,” Dart said.