NATURAL GAS FUTURES

Surprisingly, the inventories of natural gas have stayed remarkably high in spite of production problems from this fall's hurricanes in the Gulf of Mexico. Supplies also got a boost from a mild November, but now that colder temperatures have hit the U.S., the real test begins. The U.S. Minerals Management Service said that as of December 22nd, 20% of natural gas production in the Gulf of Mexico was closed down. The DOE said that underground storage levels as of December 23rd were down 8% from a year ago. On December 6th, the DOE estimated 2005 natural gas demand in the U.S. of 22.35 trillion cubic feet, more than the 21.46 trillion cubic feet of estimated new supplies (including imports). The average wellhead price is estimated at $10.38 in the fourth quarter of 2005, up from $5.92 a year ago.

Henry Hub natural gas prices are estimated to average $8.88 per thousand cubic feet (mcf) in 2005 and $9.30 per mcf in 2006.

U.S. Department of Energy's Short-term Energy Outlook. December 6, 2005.

Although natural gas prices are not likely to be supported at current levels over the longer term, they are likely to be very volatile during the winter, spiking even higher if the weather is colder-than-normal.

BMO Financial Group's Commodity Price Report. November 15, 2005.