You know the saying, “The cure for low natural gas prices is”—say it with conviction—“low natural gas prices.” Yet a decade of low natural gas prices born out of a glut of gas from the shale revolution has stymied hope of any significant, sustained recovery for gas.

So what if I told you that natural gas prices were to trend up steadily over the summer, topping $7 per thousand cubic feet (Mcf) by year-end, and would then stay there for a sustained period? Hog wash. Disbelief. Won’t happen. Prove it. Three dollars forever—if we’re lucky.

That’s essentially what I said to Michael Smolinski when he told me about his prediction.

Smolinski is the proprietor of Energy Directions Inc., an independent Massachusetts-based sell-side research firm. He is also the president of the National Association of Petroleum Investment Analysts. What differentiates his methodology is his focus on the physical markets, and he thinks those physical markets are shouting a message of imminent change ahead. Change to the upside.

Natgas last topped $7 in February 2014 briefly over a four-day period. I didn’t remember it; Smolinski had to show me the chart—a momentary spike during a cold snap. I last remembered gas above $7 on the day Chesapeake Energy Corp. closed the Plains E&P joint venture in July 2008, when it was at $13 then. Then the bottom fell out. When I spoke with Smolinski recently, Henry Hub spot sat at $2.89. Indeed, another prognosticator at the same event where I met Smolinski said, “If you’re a natural gas producer, I’m sorry. I don’t see gas getting above $3.15” for the next several years.

So how does one defend $7 by year-end? The crux of Smolinski’s thesis is that natural gas demand infrastructure, motivated by years of low, low prices, has been slowly and steadily building in the background and has finally caught up with supply capacity. The evidence of a sea change is in the storage numbers.

The 359- Bcf inventory draw in the first week of 2018 broke the prior weekly record by 71 Bcf, or by 25%, Smolinski said. Two weeks later the prior record was topped again. “That says that there is now a lot of natural gas consumer infrastructure in place that was not there two years ago or four years ago. And more is coming on stream.”

LNG is the best example. After years of permitting and construction, exports are visibly rising. Industrial gas demand, particularly petrochemicals, is also showing year-over-year growth for the first time after years of being flat. Gas demand for power generation is rising, fueled by a strong economy and new construction needing lots of air conditioning. Gas generation increasingly is replacing retiring coal plants. And don’t forget pipeline exports.

On June 1, inventory levels stood at 1,817 Bcf, about 800 Bcf less than 2017 at the same time. “That’s a lot less inventory right now for being prepared for the coming winter,” he said.

Last year’s pre-winter storage high was 3,800 Bcf, but that’s unlikely going into the 2018-2019 winter. “It looks like we’re going to struggle to have 3,000 Bcf” this fall, he said, “which means those 800 Bcf that someone was counting on last winter are not going to be there.”

Additionally, Smolinski anticipates the hot summer months will draw harder on supply than most anticipate as gas-powered gen competes with other new demand sources, leaving storage potentially even lower going into winter.

The last cold winter in 2013-2014 drew down 3,000 Bcf from storage, with another 700 imported. But that year started with 4,000 Bcf in storage. If a similar scenario were to occur this winter, “you end up negative and pulling out of base gas. That sets up a frantic situation because all of a sudden people are needing it and struggling to get it. If you get to zero at the end of the winter, $7 will be cheap.”

But with so much gas resource at our fingertips, can’t we just produce into the demand load, suppressing prices? In theory, but not reality, he said. Two reasons: Depletion rates will be harder to offset than expected due to the vast number of wells needed to replace declining ones, and gas rigs will have to compete with oil rigs to ramp up supply, which will come at a cost.

Should this theory prove out, the gas price will rise steadily through the summer in a march toward $7. It will be sustained in the years ahead because demand infrastructure is here to stay. “Low prices have triggered additional demand, and the demand that got triggered years ago is finally being completed. I’m expecting gas producers to be wonderful performers in the next one to three years.”

So, low gas prices ultimately will be the cure for low gas prices. We wish to believe.

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