Washington (Platts)--19Aug2008

The US could end its traditional natural gas injection season with 3.52
Tcf in storage at the end of October, just under last year's record 3.545 Tcf
as mild summer weather, increased domestic production and reduced industrial
sector demand begin to ease a tight supply picture, Lehman Brothers said.

In report issued late Monday, Lehman said reported storage injections
lagged behind 2007 for most of this year's injection season, reaching a peak
year-over-year deficit of 389 Bcf by July 4 and helping to push the
front-month NYMEX gas contract to a peak of $13.577/MMBtu on July 3.

The report said that after hitting the peak, the front-month contract
fell for three straight weeks, dropping to $9.09/MMBtu on July 25 and declined
to $8.135/MMBtu on August 14. While Lehman said the decline occurred "within
the context of a broader commodity selloff," it said the "bulk of the price
adjustment resulted from the sudden loosening of the supply and demand
balance, as indicated by the weekly storage numbers."

Where earlier in the summer the market was tighter than in 2007, "it now
appears significantly looser year-on-year through the remainder of the
injection season, which should allow US inventories to nearly close the
deficit to year-ago levels," the investment bank said.

Lehman attributed some of the "loosening" in the US gas supply and demand
balance to a 7% to 9% year-over-year growth in domestic production that has
more than made up for the decline in liquefied natural gas imports in 2008.

Another factor in the improving supply picture, Lehman added, is a drop
in demand from the industrial sector as the "advantages of less-expensive gas
[compared with European and Asian prices] and the weak dollar seem to have
finally been trumped by the global economic slowdown. It is no coincidence
that this mid-summer industrial slowdown coincided with suddenly bearish
storage numbers."

Lehman acknowledged that weather remains the wild card in its projection,
saying that it expects August and September weather will be "significantly
cooler" than last year and that tropical storm and hurricane-related supply
shut-ins will not exceed 60 Bcf.