	Introduction

Natural gas markets in North America had a tumultuous year in 2008. In the summer, supply area spot prices went much higher than in the past, then decreased through the rest of the year to end lower than at the start of the year. Natural gas remains an important and environmentally attractive energy source for the United States and supplied approximately 24% of total U.S. energy in 2008. In 2008, liquefied natural gas (LNG) imports decreased 54% from the record levels of 2007, decreasing already low utilization factors at import facilities. The Federal Energy Regulatory Commission (FERC) approved two more major import terminals in 2008. Briefly, important developments in natural gas markets during 2008 include the following:
Domestic natural gas production increased to 20.5 trillion cubic feet, the most since 1974. There was an unusual price pattern in the first half of 2008, with citygate (delivered) prices lower than Henry Hub spot prices. The natural gas spot price at Henry Hub peaked on July 3, 2008, at $13.32 per million Btu and declined to under $6 by end of year. During the 2007-2008 heating season (October to March), average wellhead prices increased more than 30%, according to the U.S. Energy Information Administration (EIA) estimates. FERC approved 2 import facilities in 2008, with an import capacity increase of 2 billion cubic feet per day. The price then decreased to $5.83 per MMBtu by the end of December 2008, ending the year about 28% below the start-of-year price. This average was about 5% increase from 2007. An Anomalous Price Pattern

The spot price of natural gas is a key indicator of the price that producers or LNG importers are receiving for spot sales in the major producing area of the Gulf of Mexico. The spot price at Henry Hub appears to have increased quickly in the first half of 2008, and this price at Henry Hub (a supply area price benchmark) actually exceeded the EIA estimated average citygate (the "delivery points" in consumption areas) price. EIA forecasts an increase of less than 20 Bcf of LNG for 2009 to 369 Bcf. They include:
strong lower-48 onshore production a decrease in seasonal demand swings strong gas-for-power use changing international trade in LNG continuing progress in natural gas infrastructure development

		Strong Production

The natural gas supply picture for the lower-48 improved during 2008. Advances in unconventional gas production led to a 7.7% increase in lower-48 production, even though outer continental shelf (OCS) production lost almost 350 billion cubic feet due to hurricanes Gustav and Ike. Gas-for-Power Use

From 2006 to 2007 deliveries to electric power customers increased by 615 Bcf, more than 45% of the consumption growth for the year. 2).
In 2008, the United States natural gas market experienced a tumultuous year, and market forces appeared to guide consumers, producers and investors through rapidly changing circumstances. Natural gas continues to be a major fuel supply for the United States, supplying about 24% of total energy in 2008.
The year began with a relatively tight demand/supply balance, and this generated upward spot price movement. For the 2007-2008 heating season, the Energy Information Administration (EIA) reported a price increase of more than 30% (beginning to end of season). The key "benchmark" price for the United States, the Henry Hub spot price, generally rose through the first half of 2008 to a peak of $13.32 per million British thermal units (Btu) on July 3, 2008. By the end of 2008, the Henry Hub spot price had decreased 56% to $5.83 per million Btu, lower than the $7.83 per million Btu price on January 2, 2008.
Closer to consumers, the EIA average citygate price increased 47% from January to $12.08 per million Btu in July and then decreased to $7.94 per million Btu as of December, a 2% drop from the start of 2008. Residential consumers saw a 68% increase through July and then a decline that had December 5% above January's average price.
The supply outlook for the lower-48 states began a potentially important change in 2008. Onshore production in Texas and the Rocky Mountain region increased by 15%, especially because of the production of unconventional natural gas (e.g., deep shale gas).
Noteworthy events in 2008:
The national natural gas market experienced an unusual price pattern in the first half of the year, with EIA reporting average citygate (delivery area) prices lower than Henry Hub (supply area) spot prices. The normal pattern is the prices in delivery areas, which include transportation costs, are higher than supply area prices. Lower-48 onshore natural gas production increased 10% to reach more than 20.5 trillion cubic feet, a level not achieved since 1974. This production, along with other factors such as the weakened economy, appears to have prevented the 350 Bcf of lost gas production due to Hurricanes Gustav and Ike in the Gulf of Mexico from increasing prices. Liquefied natural gas (LNG) imports decreased 54% from the record level in 2007. Average use was less than 10% of reported capacity at operational LNG import facilities. The Federal Energy Regulatory Commission (FERC) approved another 2 Bcf per day of new import facilities in 2008. Gas for power use decreased 2.4% from 2007 and electric power remained the largest end use category for natural gas consumption for a second year.
Going forward, current economic turbulence may contribute to natural gas market challenges, in terms of investment or attempts at market mischief. Vigilance in market oversight could grow in importance.