Natural Gas Report

Dec. 4—Another year is behind us with the December 2006 NYMEX natural gas contract settling at $8.32/MMBtu. While 2006 was not as eventful as 2005—i.e., no major hurricanes—it was still an interesting year. The average monthly NYMEX settlement price for 2006 was $7.21/MMBtu, down 14 percent from 2005's monthly average price of $8.61/MMBtu. Notably, the October 2006 NYMEX settlement price of $4.20/MMBtu was the lowest settlement price since December 2002 ($4.14/MMBtu). During the roughly four-year span between price lows, the market hit a monthly settlement high of $13.90/MMBtu (October 2005) and averaged $6.78/MMBtu. Also, each year from 2002 through 2005, the annual average price was higher. The trend was broken with the 2006 average price coming in lower than 2005. Are we moving into an era of lower prices, or is this a lull before another storm? It depends on weather conditions, which drive storage inventories; prevailing world oil prices; energy demand, which, in turn, is strongly tied to economic growth and activity; drilling activity and success rates. It also depends (increasingly, it seems) on the degree and direction of hedge-fund activity in the marketplace. Over the next few months, we will look at each of these factors in a bit more detail to get a better sense of natural gas prices for 2007 and beyond.

Casey Whelan, vice president of business development, can be contacted at cwhelan@usenergyservices.com.

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