Every spring for the last several years, I have written a report on the major energy developments of the previous year. The Risky Diet series will not help you lose weight but hopefully will help you understand what’s going on in the energy world. This year’s edition is now available on the CEERT Web site at www.ceert.org. Last year’s big events were the hurricanes that hit the Gulf of Mexico, where they damaged oil and gas platforms, drilling rigs, and undersea pipelines as well as onshore infrastructure. Since U.S. natural gas import capacity is limited, there was much wringing of hands over the loss of gas production. The government’s Minerals Management Service posted daily updates of how much gas production had been lost, which totaled nearly 600 billion cubic feet by the end of 2005. Prices skyrocketed. However, as of June 2, 2006, gas storage is a whopping 624 billion cubic feet above the five-year average for the date (37 percent). Moreover, although gas prices have fallen from their post-Katrina peaks, they remain quite robust compared to prices over the last few years. Risky Diet 2006 attempts to answer the two obvious questions: (1) How in the world did we get so much gas into storage considering the damage done by the storms? (2) Why have gas prices remained strong despite the huge storage surplus? I won’t give away the denouement of these exciting mysteries, but regular readers of this column already know part of the story. Risky Diet 2006 provides the rest of the clues. Since the storms, we have accumulated some 1,200 bcf more than expected. The angel that provided the extra gas was not mild winter weather. Media reports making this claim, of which there are many, are simply wrong. Only January was particularly mild, and gas savings in that month amounted to only about 200 bcf. The majority of the extra gas came from a significant decrease in gas consumption unrelated to weather. Refineries are heavy users of gas, and damage to Gulf Coast refineries surely accounted for some of the decrease in consumption. However, temperature-independent consumption remained low even after the refineries were back on line. Evidently, the high prices that followed the hurricanes made a big dent in consumption. It will be fascinating to see whether this demand returns now that prices have fallen a bit. As of March, the latest month for which official data are available, it had not. The question of why prices have not fallen more than they have is more puzzling. Prices for gas to be delivered next January closed Wednesday above $10/MMBtu, and the average for the next 12 months remains above $8/MMBtu. My guess is that the price of gas is being supported by the price of crude oil, which remains near its historic high. My current forecast shows natural gas storage levels peaking November 1 at about 3,850 bcf, a record amount and close to the maximum storage capacity. It is quite possible that individual storage facilities will be maxed out. Unless oil prices move up sharply, gas prices will continue to experience downward pressure as the storage situation tightens. The next few months should tell us a lot about how gas consumption reacts to changing prices. There are preliminary signs that today’s prices are already reducing supplies and/or increasing consumption. If prices fall below about $5/MMBtu, gas will begin to displace coal for electric generation in some markets, for example. For all the gory details, you need to read Risky Diet 2006. Enjoy the latest installment of this ongoing saga.