Natural gas prices on a stubborn flat streak

Never talk to a natural gas producer about the weather. They smile while the rest of us suffer. Not that their schadenfreude isn't understandable: bad weather – whether it's an Arctic cold or a summer hurricane – makes for high gas prices.

At least, it does when things are normal. But things are not normal. This year, it doesn't seem to matter how icy it gets, gas barely budges. It may be December, a belt of cold may be strapped across the top of the U.S. and inventory levels may be below last year. But prices have stubbornly stuck around $4 (U.S.) for 1,000 cubic feet.

Don't count on things changing any time soon.

"The fact that it's cold and natural gas prices haven't really moved that much is not a good sign," said Peter Tertzakian, chief energy economist at Calgary's ARC Financial.

And it's likely to get worse before it gets better – possibly far worse when the weather starts to shift in a few months.

"In the springtime, you're going to test some weak prices. And low $2s is not out of the question unless something" – Mr. Tertzakian hesitated to use the word "miraculous," although it's a term suffering gas producers might agree with – "unless something unforeseen changes the current dynamic."

Dire predictions have brought out the contrarian in some investors, yet even those whose fortunes are tied to gas are giving little cause for optimism. Their worries extend beyond spring. Last week, Canadian Natural Resources Ltd. president Steve Laut predicted gas prices won't exit the basement for two to seven years.

It's an irony that the chief cause of all this misery is the best news to hit the gas business in decades. Companies are tapping massive new shale reservoirs, and the gushers they're finding have drawn in foreign investments by the billions. It's in part those dollars, and the drills they're turning, that are feeding the current gas oversupply.

Low prices have, of course, increased the likelihood that demand will increase. It's already happening: In the eastern U.S., gas demand for electricity generation is up a stunning 48 per cent between September, 2008, and September, 2010, according to figures compiled by Eurasia Group – and there's potential for a lot more.

"Even absent carbon legislation, there are plenty of other regulatory developments at the state and federal levels that are undermining coal and positioning gas to gain market share in the U.S. power sector," Robert Johnston, the group's director of energy and natural resources, wrote in a recent note.

But that's not going to come right away – and until it does, chances are it's going to stay painful.

"The old adage, that low prices are the cure for low prices – that's really what we need to wait for," Mr. Tertzakian said.