natural gas futures prices

Forget the Farmer's Almanac.

As we move into the winter season, two things are becoming clear. First, this one will be colder than last year, nationwide. Second, natural gas prices are moving up.

A colder season ahead is an almost statistical certainty. The likelihood of having a repeat of last year's mild winter is quite low. And my second assertion is now supported by several factors.

Until very recently, the changing of seasons was a determining factor in gas prices.

The warm winter throughout much of the U.S. last year certainly contributed to the dive that saw gas prices plummet to near $2 per 1,000 cubic feet (or million BTUs), the NYMEX futures contract unit.

The bigger issue, however, has been the game-changing entrance of unconventional natural gas supply in North America. Both the surplus of in-market stored gas and the ready availability of expanding reserves have been driving factors in lowering prices.

The amount of available gas is staggering.

Known reserves of shale and tight gas, coal bed methane, and remaining free standing volume now allow up to a 25% increase in supply per year into the foreseeable future.

Now, nobody would actually drill that much, because they would destroy the market (the classic example of "drilling" oneself in the foot).

But the ready availability was restraining pricing. That resulted in a period in which gas rig utilization has fallen each month - to its lowest level in over a decade. The industry has been slowing the introduction of accelerating volume into what had been an oversaturated market.

The hottest summer on record also contributed to a steady improvement in price. As the power-generating sector moves quickly toward low-priced gas as the fuel of choice, rising temperatures also increase the need for gas.

But now, at last, the balance is forming.

The inventory is now the smallest in the last two years, as demand picks up in petrochemicals, industrial usage, and even vehicle fuel prospects.

The major thrust is beginning.

This will not be a straight line for natural gas prices. Volatility cuts in both directions.

But one thing is clear.

The gas market is about to get a whole lot stronger...