New York (Platts)--6Jan2009

US natural gas prices will remain depressed in 2009 as the weak global
economy continues to erode demand, analysts with LCM Commodities in New York
said.

The US gas market outlook for this year "simply has all the makings of a
bearish scenario: robust supply, weak demand and high inventories," analysts
Edward Kott and Edward Morse said in a report released late Monday. And,
because widespread demand destruction appears likely to coincide with the
seasonal gas consumption peak, "the industrial downturn should loosen gas
markets even more than most expect," the analysts said.

The analysts forecasted an average first-quarter Henry Hub gas price of
$4.97/MMBtu, with an average 2009 price of $5.30/MMBtu.

The global economy is enduring its most severe downturn in decades, the
report said, and the worst is probably yet to come. "To be sure, concerns
about demand weakness plague virtually every sector of the global economy,"
the analysts said, adding that "[n]atural gas markets, however, follow a
predictably seasonal pattern that lends importance to the timing of the
current economic slowdown."

Rather than just scaling back production, many industrial gas consumers
have begun closing or idling plants entirely, which eliminates both the gas
used in industrial processes and that used for space heating. Because most
forecast models assume that temperatures wield the same influence on gas
demand regardless of the level of economic activity, the current global
slowdown could have a much more substantial impact on gas demand than
currently anticipated, the analysts said.

As always, weather is an important factor in figuring gas demand, the
report said. "If January and February bring mild temperatures, the impact of
plant closures on industrial heating demand will go unnoticed," the analysts
explained.

But the report said severely cold temperatures and more plant closures
could cause demand models to overestimate industrial demand by more than
900,000 Mcf/d this winter. While that may not be "an enormous quantity of
gas," the analysts said it is "enough to help take the edge off of a very cold
winter and to reduce the likelihood of ending the heating season with low
inventories."

With normal weather in the first quarter, the analysts projected that
industrial demand will fall 1.3 Bcf/d from the first quarter of 2008.

Demand from residential and commercial sectors is far more sensitive to
weather patterns than to economic conditions, but the severity of the ongoing
economic contraction could cause unusual demand destruction in those areas as
well, the report added.

"More stores and businesses reportedly closed down in 2008 than in any
year since 2001, and that trend is likely to continue this year," the analysts
said. As such, "just as companies will not heat idle industrial plants,
businesses will not heat unused commercial space."

Similarly, more than 3 million homeowners have faced notices of default
or foreclosure in the year ending November 2008, with year-to-date
foreclosures up 44% over 2007 and up 148% over 2006. Because many formerly
occupied homes are sitting empty during the peak heating season, they
represent even more lost gas demand, the analysts said.

Taken together with lost industrial demand, "very cold January and
February weather could result in demand destruction of slightly more than 2
Bcf/d not accounted for in most natural gas demand models," the analysts said.
"Even if gas bulls get the low temperatures that they're hoping for, they're
still likely to be left out in the cold this winter."
--Melanie Tatum, melanie_tatum@platts.com