As the U.S. emerges from a winter of record-breaking warm temperatures, natural gas storage levels are also breaking records. Yet, Martin King, an analyst with FirstEnergy Capital Corp., believes gas prices will strengthen during 2006. "We believe that several important balancing aspects of the marketplace have already been set into motion, and will ensure that prices will not go much lower than their recent March lows," he says. "In fact, natural gas prices may be on the verge of a slow and steady march to higher levels." He expects an average gas price of US$8 per million Btu may be a conservative estimate. During the winter heating season, some 1.5 trillion cubic feet of gas was withdrawn from storage, "the smallest cumulative withdrawal from storage since the early 1990s," he says. "From this perspective, the latest withdrawal season just wasn't there." In years past, this could foretell doom for gas prices. "With all that leftover natural gas in storage, the United States natural gas market would seem to be facing a problem in the form of having too much natural gas on hand in the short term." His current model considers the odds of a cool summer and factors in some permanent production losses in the Gulf of Mexico. "We do not see prices as coming under undue downward pressure in the event of a cool summer, expecting that marginal cargoes of LNG (liquefied natural gas) would simply be bid away to other parts of the world in response to slack pricing conditions in North America-something which has been going on for several months, already." He urges no one to bet on lower gas prices. "If the natural gas market has shown us anything in the past five years it's that nothing, absolutely nothing, can be taken for granted," King says. "Just because the storage-injection season looks slow and current storage levels are at modern record highs, does not necessarily mean that it will be a very soft pricing environment during the injection season later this year."

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