Would you believe that Hurricane Katrina actually improved the U.S. natural gas situation? According to the official statistical branch of the Department of Energy, that’s what has happened. Gas, 163 billion cubic feet of it, has been added to storage in the last two weeks, despite reports from the Minerals Management Service that 57 Bcf was shut in by Katrina’s damage. Even if I ignored the lost production reported by Minerals Management, the increase in storage was considerably more than I would have forecast. One possible explanation is that the damage caused by Katrina and the run-up in prices have decreased consumption more than they affected supplies. If so, the Minerals Management and EIA reports would indicate that U.S. total gas consumption decreased by about 10 percent in the second and third weeks after the storm. Although this seems like a large amount, it is not impossible. Gas-fired power plants in the area have been closed; refineries and chemical industries that are heavy gas users have also been inoperative. Nevertheless, that Katrina has resulted in larger than usual additions to storage comes as a surprise. The only other alternative is that EIA is fudging the storage reports in an attempt to calm energy markets. An independent audit of the reporting process is in order, since energy markets rely heavily on the credibility of EIA statistics. Meanwhile, the market appears to be disregarding the surprising EIA data as prices continue to rise. As I write this, gas is trading at around $13/MMBtu, more than 30 percent higher than before Katrina. If Rita moves ahead as projected, who knows where prices will go? Since fears of shortages have not been assuaged by the recent bearish storage reports, there appears to be no upper limit to gas prices. Last June I remarked that a price of $10/MMBtu was possible this year, although it seemed like a reach at the time. With the market now at $13, even before Rita makes landfall, $20 is in sight, and $30 or higher is not impossible. The U.S. natural gas situation has reached the crisis stage, and Rita will exacerbate the problems. The U.S. lacks the ability to import emergency supplies of natural gas, as it can gasoline and crude oil. Scarcity has added almost $10/ MMBtu to the price of gas, and buyers are now paying nearly four times the cost of even the most expensive production. If the EIA reports are accurate, traders may come to their senses, realize that there is ample gas in storage for the winter, and bid prices down. The havoc caused by this year’s storms is indeed tragic, but energy infrastructure will be repaired and rebuilt over time. Damage to facilities above ground will be disruptive but short-term in nature. In the longer term, what?s happening underground is more important. The large deposits from which much of our gas has been drawn in the past are dwindling, especially those in the Gulf of Mexico. Supplies are now dependent on resources in geologically difficult areas – – coal seams, shale, and tight sands. Despite high prices and aggressive drilling, North American gas production is stagnant. Our energy system is much less resilient than in the past. We will recover from Katrina and Rita. But the storms have vividly illustrated how thin our energy cushion is. Gas storage levels this year may be adequate, thanks to the storm’s impact on consumption, but the outlook for the future is sobering.