SEPT 09 MARKET UPDATE

STORAGE REPORT
This week’s EIA storage report for the week ending September 4, 2009:
This week’s injection of: 69 Bcf
Leaving this week’s balance at: 3392 Bcf
This week’s balance last year: 2897 Bcf
This week’s balance, 5-yr average: 2889 Bcf

Natural gas storage is 17.4 percent above the 5-year average and 17.1 percent above last year’s level.

THOUGHTS ON THE MARKET

The Sept NYMEX closed at the lowest prompt-month expiry in 7 ½ years. Natural gas made an expected rally last week as many consumers and speculators bought in response to the lowest prompt month price. The Dow also closed the week at 9605, the exact level it was at the close of 9/11/2001. Natural gas wasn’t far from its price 8 years ago of $2.40, which was our low last week. After the 9/11 tragedy, prompt gas dropped to $1.76 and the calendar ’02 strip price was $2.90. When we made the low of $2.40 last week, the calendar ’10 strip was $5.25. Historically, multi-year lows are followed in 6 months with a retest of that low and during the retest the forward strip prices are lower than at the time of the initial low. We may be at a multi-year low. Expect gas prices to make a seasonal run up beginning in October. Reasons will range from the seasonal nuclear plant outages to tropical storms, but with storage already at 3.4 Tcf, the Q4 will be muted and early Q1 may be your best bet to buy longer term gas at lower premiums as we end the winter season with record levels of gas still in storage.

Here is another analyst version of what will happen in the upcoming months. EIA expects that the Henry Hub price of natural gas will average $2.25/MMBtu in Oct. Prices are projected to bottom out in Oct and then rise through Feb 2010 averaging $4.59/MMBtu in Feb, and fall from Mar through Aug 2010.