By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) -- The U.S. may be experiencing its coldest winter in a quarter century -- and while that's bad news for producers,
consumers have reason to celebrate.

True, futures prices for natural gas have more than doubled in the last 5 months to trade above $5 per million British thermal units in New
York, but they're nowhere near the high above $13 they saw in 2008 and
they're likely to sit tight at current levels for awhile because of
ample supplies and forecasts for growing production.

"There is virtually no way that natural gas will have any supply restraints for 2010, and probably not for 2011," said Charles Perry,
president of energy consulting firm Perry Management. "There is simply
too much gas available to allow any increase in prices" for this year.

'There is virtually no way that natural gas will have any supply restraints for 2010, and probably not for 2011.'

Charles Perry, Perry Management

U.S. natural-gas production climbed 10.6% from 2007 to 2009, according to Perry, with most of the increase due almost entirely to new
production derived from shale, a geologic formation.

"This boom caused over-production in gas in the U.S.," said Perry. The oversupply, along with a recession and fall in consumption of 1% from
2007 to 2009, helped drive wellhead gas prices down to $3.70 in 2009
from $8.07 in 2008, he said.

This winter's cold snap in the U.S. appears to have helped stabilize prices for now.

Population-weighted, from the Plains east, this winter will likely beat the 2000-2001 winter season to become the coldest winter since
1983-1984, according to Joe Bastardi, a senior meteorologist at
AccuWeather.com, with the weather in the last 10-15 days of this month
probably cold enough to officially make this winter the coldest in a
quarter century, he said.

But the severe weather hasn't been successful enough in bringing down natural-gas inventories.

"There is plenty of shut-in production to take care of any weather- or industrial-use [demand] surges," said Bernard Feshbach, president of
investment firm Feshbach & Sons.

And while withdrawals to supplies in storage have been strong, the U.S. underground storage inventory is at the high point of the last 5 years
after hitting a record of 3.9 trillion cubic feet, Perry said. And "we
are far enough through the winter now to know storage inventories will
still be at the high end of 5-year storage inventory levels by the end
of the [supply] withdrawal period."

So the storage "overhang," over both this time last year and the 5-year average, should provide some downward pressure despite continued cold
weather," said Beth Sewell, a managing partner at Quantum Power &
Gas Services.

Long-term price pressure

The natural-gas market also looks well supplied for years to come.

"With the availability of multiple shale-gas reservoirs and growing LNG [liquefied natural gas] supplies, the natural-gas supplies for the U.S.
appear to be plentiful for at least 20 years," Perry said.

When development of the nation's shale-gas reservoirs is completed, estimated shale gas will total around 9 trillion cubic feet per year --
equal to 40% of the country's production in 2009, he said.

Producers likely already have the incentive to develop these shale sources too. "All shale reservoirs become economical for $5 to $6 gas
and the price is there now," said Perry.

Analysts have told Platts that while there's a more than 50% drop in gas rig count over the past year from low gas prices and oversupply,
production is only down "marginally" because producers are ramping up
shale plays, where gas is "extracted more quickly and cheaply,"
according to Mark Davidson, editorial director of U.S. Gas News at
Platts. "This has meant supply continues to exceed demand, and there's
no sign of that production boom abating."

But oil and gas rig counts have been climbing recently. As of Feb. 12, there were 1,346 rigs actively exploring for or developing both oil and
natural gas in the U.S., up 11 from a week earlier, according to data
from Baker Hughes Inc.
(NYSE:BHI)
.

"We can anticipate some extra [natural-gas] supply to show up sometime soon, or at least supply shouldn't be a problem this year," said Ben
Smith, president of First Enercast Financial, an information vendor
serving energy markets.

He believes that natural-gas prices above $5 should spur new supply to enter the market, while sub-$5 levels could curtail supply.

'Elephants in the room'

The endless shale potential is just one of the "elephants in the room," according to Feshbach & Sons' Feshbach, referring to issues that
are often ignored or go unaddressed.

VisMedia

The U.S. also has the second-highest import capacity in the world and perhaps the most storage for LNG, according to Perry.

So one of the "wild cards" for the natural-gas market is all the LNG on the water that's looking for a home, said Sewell.

Europe and China have been "soaking up all the excess LNG floating around recently," said Smith. That "may change as soon as winter comes
to an end" and if Europe experiences any sort of economic setback, LNG
prices there may suffer, sending shipments to the U.S.

Even if prices fall, don't expect LNG producers to cut back production in the near-term.

"They need the revenue no matter what the price and the U.S. has the most underground storage facilities in the world," Sewell said.

There have already been reports of LNG tankers being diverted to the U.S. to "take advantage of the storage here and these loads of LNG are
being dumped at whatever price they will bring," said Perry.

"Of course, this does not bode well for natural-gas prices for producers," he said. "Gas consumers are the ones who should be
optimistic now."

Weather prop

But how can consumers be optimistic when the weather outside is so miserable?

Parts of the U.S. are getting "hit hard with cold, windy weather that boosts gas use in home heating," said analysts at Deutsche Bank, in a
note to clients last week.

In the South census region of the nation where 60% of households use electricity as their primary space-heating fuel, heating-degree days, a
measure of energy demand for heating, climbed 13% in January
year-on-year, they said.

The Energy Information Administration, in a report issued last week, estimated that January electric-power-sector natural-gas consumption
will be at a new record for the month.

"As cold weather and arctic temps continue, supplies will draw down even more," said Kevin Kerr, president of Kerr Trading International.
"Historically, this year will stand out, and EIA [weekly supply]
numbers will be invalid or significantly inaccurate."

But in order to bring natural-gas prices back to the $13 levels seen in 2008, the market would need to see a "prolonged winter and then a quick
foray into summer with high temps," said Kerr.

That quick foray might not even happen.

"The mid-Atlantic and Northeast will probably have a slow start to the summer season as far as warmth," said Paul Pastelok, a senior
meteorologist at AccuWeather.com.

"After a possible flip from a cold ending to winter to a warm up in April, temperatures will cool back off again in May and June to below
normal across the Great Lakes, Northeast and possibly mid-Atlantic
states," he said, using a forecast that's based off a series of analogs
he and Bastardi researched recently. And "the usage of natural gas may
not be as high this coming year for the central and southern Plains."

Besides, betting on weather would be pretty risky.

"Gambling on weather is, over time, a sure-fire way to lose money," said Feshbach. "Sooner or later, the weather always becomes
uncooperative."