Washington (Platts)--21Apr2009

A panel of energy experts admitted Monday that they were flummoxed by the
behavior of natural gas and oil prices over the past year.

"We don't know what's going on," accounting firm Deloitte & Touche's
independent energy advisor Joseph Stanislaw said at the company's 2009 Energy
Conference in Washington. "All rationale has broken down."

Stanislaw, who was a founding member of Cambridge Energy Research
Associates, offered what he called "the little bit theory:" prices move
drastically when there is a little bit too much supply or a little bit too
little demand; as little as 5% in either direction.

"A lot of people pointed to manipulation," Stanislaw said. "[Energy]
companies wish it was manipulation. People rationalize all around it."

While the past year's price run up may have been led by financial
traders, the price collapse is directly related to sharp drops in demand
caused by the world's economic slowdown, Stanislaw said.

"Demand is falling through the floor, it's down 2 million b/d," Stanislaw
said, adding that some of that demand is being permanently destroyed by the
world's gloomy macroeconomics.

"I'm not a peak oil guy, I'm a peak demand guy," Stanislaw said, noting
that China and India are not consuming as much gas and oil as expected.

World Bank energy advisor and former ConocoPhillips executive Robert
Lesnick agreed that worldwide demand may stay flatter longer, but pointed to
changes in the US. He said the world's largest energy consumer is becoming
more efficient and consuming less gas and oil.

"US demand is going to be flat," Lesnick said. "What does it mean when
the US is no longer the big consumer?"

The biggest threat to North American natural gas prices remains liquefied
natural gas imports, Stanislaw said.

"Global gas will be driven by global power," he said. "Electric [plants]
will drive gas markets [worldwide]. The biggest threat to the North America
gas market is LNG."

The threat comes from the potential for LNG cargoes to be dumped into the
North American gas market where it can be stored and transmitted, a feature
that could crush US spot prices if the world doesn't buy those cargoes,
Stanislaw said.

National Ocean Industries Association President Tom Fry said "the gas
market is now global and gas will move to where it can get the best price."

"Gas is going where prices will take it," he said, "if prices change gas
will come."

Lesnick disagreed with that suggestion and along with Deloitte Consulting
Energy Director Rebecca Ranich said the North American market remains a
separate and distinct entity from the world market. "The market is not global
yet, gas is trading on a regional basis," Lesnick said.

North American producers are in the midst of a paradigm shift across the
globe, Ranich said. Decreases in demand "change the way the US has to deal
with investing in energy exploration and development," he added.

"Gas is a very different market from oil now," Ranich said, driven not
only by North American shale plays but also by the strong possibility of
impending climate change legislation in the US.

--Bill Holland, bill_holland@platts.com