As oil prices tested $60\/barrel this week and natural gas prices hovered around $7\/MMBtu, the U.S. Energy Information Administration released natural gas data for the first four months of 2005. The emerging picture is no rosier than before. The good news for consumers (but not for environmentalists) is that the gas industry is drilling like crazy?10 percent more wells have been drilled so far this year compared to the first four months of 2004. The bad news is that production from new wells is not keeping up with depletion of old ones. U.S. production is down 2 percent so far this year. Fortunately, current prices have prevented consumption from growing. Despite the fact that the U.S. has about 3 million more people this year, consumption of natural gas declined because of mild winter weather. Consumption unrelated to weather was flat. The decline in total consumption offset the decline in U.S. production almost exactly. LNG imports changed little, but slightly more gas imported from Canada reduced the seasonal winter draw on storage compared to last year, and levels remain above average. I see no indication that the North American gas supply situation will improve in the next year or so. If Canadian production falters, U.S. supplies would be expected to decline. As a result, prices should remain at or above current levels, limiting consumption. The wild card continues to be the weather. Gas demand for heating and for powering air conditioners is relatively insensitive to price. If this summer continues to be hotter than last or if next winter is colder?and the weather last year was exceptionally mild?more gas will be drawn from storage. Market participants watch the weekly storage reports like hawks, and a significant drop would no doubt encourage the bulls and drive up prices.