Although yesterday’s EIA Weekly Natural Gas Storage Report recorded a smaller draw than analysts expected – 262 Bcf declined from storage, but expectations were around 271 Bcf – and the March NYMEX gas futures contract decreased in price as a result, storage remains historically low and the need to replenish it during injection season could be bullish for prices.

“Assuming average drawdowns over the next eight weeks (using average figures from the last eight years), we could exit the winter drawdown season with 1.221 Tcf of gas in storage, below the trough number seen in Spring 2008. While lower 48 production continues to grow, as seen by the most recent EIA-914 data that showed November 2013 production increased 1.3% m/m to 75.6 Bcf/d, an extra 1.5 Bcf of production per day over an entire year will be needed to address the ~550 Bcf shortfall we currently have in storage.” – Sterne Agee Analyst Tim Rezvan

And the brokerage’s analysts went on to note that increasing US-Mexican pipeline connections and growing natural gas demand in Mexico will incrementally pull US supply south over the medium term.

“And Mexico Plans to Sop Up Our Extra Production. Continued visibility on gas export growth to Mexico via pipelines remains an under-discussed development. Private midstream operator NET Midstream plans to have a new 2.1 Bcf/d, 42″ pipeline from South Texas to Mexico operational by year-end, and several Kinder Morgan [pipes] (KMI, $33.24, NR) are expected to add approximately 1 Bcf/d of pipeline export capacity through three projects by October 2014. Gas-fired electricity generation growth in Mexico will be a secular tailwind for natural gas production in the southern US through this decade.”