Natural gas was trading this morning on Nymex at $9.40 to $9.64 for April through September delivery--good news for U.S. producers whose all-in costs are running $6/Mcf. Gas prices were flirting last year with an uneconomic-to-produce price. And, the ability to secure debt by hedging was being diminished as well (e.g., producers wouldn't lock into an unprofitable $6/Mcf). In the past, April-September was the low-natural-gas-price period, but as more natural gas is used in generating electricity, summer (cooling) prices have become as strong as winter prices. George Hopley and Michael Zenker, commodities analysts with Barclays Capital Research, are forecasting a 152-Bcf net withdrawal from storage this week. They summarize the current U.S. gas market as follows: "The U.S. gas market recently has been settling near-term prices that reflect more than a bit of apprehension about the swift decline in inventory--certainly compared with the past two years, if measuring expectations for end-of-March and end-of-October 2008 come up short. "By that metric alone, some move higher could have been expected if starting from the delicate balance achieved in January. However, the bulk of recent price history for the U.S. natural gas market has demonstrated abrupt moves in market sentiment from oversupplied to undersupplied, with not much room in between. "It was not long ago that questions about the ultimate storage capacity were common, and the battle envisioned between onshore production and imports of LNG. With the reduction of this year's end-March inventory to near 1,300 bcf or the loss of roughly 250 bcf due to recent colder-than-expected temperatures across the Eastern U.S., there is a valid question about how to make up that loss during April-October. "This task is seen as a challenge if the first pass on other market balances draws mixed expectations: LNG imports should be slower in 2008, so Canadian imports could falter as well. Power demands should rise--weather-normalized--although industrial gas demand may be flat or decline with weakening economic activity. "The key for 2008 will be whether onshore production can continue to show strong year-over-year growth throughout injection season. Beyond that, weather is the wild card for the demand side, which can quickly create the appearance of very tight or loose markets." –Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, Oil and Gas Investor This Week, ndarbonne@hartenergy.com