In its January Short-Term Energy Outlook the US Energy Information Administration predicted industrial gas demand in 2010 will remain below 17 Bcf/d, nearly 10% below pre-recession levels.

Speaking at an S&P Credit Risk conference in Houston, Lundberg said the loss of industrial customers "has kept demand tepid," at the same time increased efficiencies among producers, particularly in unconventional wells, have kept the market well-supplied. Even though rig count has dropped by half since 2008, Lundberg said, "rig count has had a meaningless impact on production." And with more and more shale plays coming online, that trend is expected to continue, he added.

Market watchers have expected that the increasing availability of shale gas in the market "would keep prices down. It's a spigot [of cheap gas] that you can just turn on," Lundberg said. "The thesis that [higher production and lower demand] could lower volatility makes sense. It could, but we haven't seen it yet."

To support his argument, Lundberg cited EIA's 95% confidence interval of the Henry Hub natural gas price between January 2010 and December 2011 (which is derived from calls and puts on the forwards options markets) has shown prices ranging from $3/MMBtu to $14/MMBtu.

"Despite all the talk, [gas] derivatives still look volatile," he said.

--Joshua Starnes, joshua_starnes@platts.com