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Natural gas prices in the US are more than $11/MMBtu (Henry Hub), an increase of more than 96% since September 2007. They haven’t been this high since the 2005 supply interruption after Hurricanes Katrina and Rita. As recently as mid-February 2008, Bloomberg predicted that gas prices would remain around $8/MMBtu for the rest of the year, and Raymond James forecast prices below $7. These predictions failed to recognize that we have reached the limits of global gas supply, at least for a while.
Natural gas prices reflect real supply and demand balance, as well as the perception of near-term changes in that balance. The key factors that suggest a gas supply limit include US production trends, growth in consumption, competition and delays in LNG supply, gas for ethanol production, and the linkage of gas and crude oil prices.
US gas production increased 4% in 2007, to 19.3 Tcf, mostly due to Barnett Shale additions of more than 1 Tcfg.
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