As North America emerges from a mild winter with plenty of natural gas in storage, forecasters are pulling back on price predictions. Henry Hub gas, which averaged $8.98 per thousand cubic feet (Mcf) in 2005, dropped below $8 in March from a $13 average in December. The expected average 2006 Henry Hub price of $8.11 per Mcf is almost 10% lower than last year, but the Energy Information Administration expects it to move up to average $8.74 in 2007 as demand improves. A.G. Edwards analyst Tom Covington has reduced his gas-price forecast 14% to $7.50 per million Btu based on an estimate that it will take almost six months for the gas markets to rebound from the storage situation. The markets are also working through a rebounding domestic supply from the Gulf of Mexico, reduced electrical-power demand and increased liquefied natural gas imports, Covington says. "After the warmest January on record built the storage surplus to record levels, we are estimating 1.7 trillion cubic feet (Tcf) of storage on April 1, roughly 62% above the five-year average...." By November 1, he expects storage to exceed 3.5 Tcf, which could yield a surplus of about 330 billion cubic feet (Bcf) to the five-year average, thanks to rebounding industrial demand, renewed price-elastic demand and favorable historical comparisons, he says. "While we are loathe to lead with the consensus bear point, it is difficult to ignore the influence that a 600-plus Bcf inventory overhang could have on spot gas prices come late March," adds JP Morgan analyst Shannon Nome. Jacques Rousseau, an analyst with Friedman Billings Ramsey, has reduced his 2006 U.S. gas-price forecast from $9 per Mcf to $7.30 based on weaker-than-anticipated winter demand. Petrie Parkman & Co. analyst Joseph Magner is lowering his 2006 forecast from $9.75 per million Btu to $8.05. Long term, he continues to forecast an average $7-per-million-Btu price through 2010. "While there is still a lot of uncertainty about how large the surplus may be at the end of March and how long it will persist, there are several things that could still develop later this year that could ultimately cause natural gas prices to settle higher than our revised estimate...," he says. Among these factors are warm weather, an active hurricane season and sharper-than-expected drops in surplus storage. For the first time since late 2003, manufacturing customers may start switching back to natural gas if crude oil stays above $60 per barrel and keeps distillate prices above $7 per million Btu, he adds.