Summer could become the pricing season for natural gas, two analysts say. David A. Garcia, an E&P analyst and senior vice president of First Union Securities Inc., notes that January and February natural gas withdrawals showed a steep drawdown, even though the National Weather Service reported those two months were the warmest January and February on record for 105 years. "This summer, supply may still be filling," he predicts. Noting a trend toward milder winters and longer summers, Garcia suggested that summer may become the new U.S. natural gas pricing season. This could happen because marginal users are going to be gas-fired electricity generators who will be relatively insensitive to the gas price, he said. That will make summer, not winter, the crucial season for gas deliverability. He also pointed out that up to 90% of new electricity generation capacity is natural gas-fired. "Last summer, there were instances of $60- to $100-megawatt-hour electricity. That price can support gas prices of $6 to $10 per thousand cubic feet," he says. He isn't predicting that price, but he notes that the price is set by whatever the last buyer is willing to pay. "The brick wall is coming into focus." He noted a disincentive to drill because the cheapest reserves are on Wall Street and because producers are concentrating more on delivering higher rates of return than increasing production. "There is a new mantra: rate of return," Garcia says. "Last time around, the mantra was volume, volume, volume. This time, it's rate of return." David Khani, senior energy analyst for Friedman, Billings, Ramsey and Co., in Arlington, Va., says that, despite upward momentum of gas prices, the market might not be as robust as some theories suggest. He predicted that the gas market will return to stability following an anticipated summer price hike. "The recent rise in natural gas prices is largely due to the anticipation of a summer price rally, and the discrepancy between oil and gas prices," Khani says. "As electricity generators begin to capitalize on the economy of natural gas pricing relative to oil, the demand side of the equation will become much more prevalent in determining short-term price movements." He maintains that gas supply has not dropped as precipitously as some industry experts anticipated, and that demand is currently a more meaningful indicator of future pricing. Khani says his firm's findings are consistent with the bullish trend of long-term price increases. But the FBR analyst believes that near-term prices could be affected by various factors. These include increased offshore production driven by the deepwater Gulf of Mexico and 23% of electricity generation facilities being able to switch between oil and gas. -Paula Dittrick