Although we’ve had no storm-related issues yet this year, the focus on short-term, weather-related inventory concerns are indeed masking serious longer-term production problems. We continue to recommend a handful of cash-paying partnerships and corporations operating in the natural gas market--despite adverse near-term gas price conditions--in the pages of Personal Finance. As my pal and cohort Elliott Gue notes below, the longer-term prospects for natural gas prices can’t be taken for granted based on the current situation:

Traditionally, natural gas has been a regional market--almost all gas was transported from well to consumer via pipelines. Thanks to relatively plentiful supplies near major consuming countries, there was little need to transport gas over longer distances.

That’s rapidly changing. North American gas production peaked in 2001 and is steadily declining even as demand remains near record levels.

More worrisome, this production decline persists despite a record level of drilling activity. The active US gas rig count--the total number of rigs actively drilling for gas-- stands at new highs, but production continues to fall.

And well productivity is declining; the annual quantity of gas produced from an average US gas well has been falling since 1999. That means producers are increasingly targeting more marginal and expensive-to-produce wells.

Bottom line: While inventories of gas are currently high, the long-term supply picture doesn’t look so rosy.

US oil production has fallen steadily since 1971 even as demand for petrol has inexorably increased. The result: America has relied ever-more heavily on imports.

The gas market is following a similar path. North American gas production has peaked, and consumption is rising; in the future, America will need to import more gas from abroad in the form of liquefied natural gas (LNG).

In fact, the Dept of Energy projects that LNG imports will grow from barely 1 trillion cubic feet the prior year to more than 4 trillion cubic feet by 2025. And the US isn’t the world’s only LNG importer--Japan and Korea have been importing LNG for years, and China received its first-ever shipment in July.

In short, gas is fast becoming a global commodity like crude oil. Right now, gas prices are far lower in the US than in Europe; Europe experienced a bitterly cold winter last year and record gas demand.

In the future, gas can be moved anywhere in the world and prices will equalize across regions. Regional weather-related slumps in gas demand won’t have such a deleterious effect on gas pricing.

Even worse, the same sorts of geopolitical supply risks that currently prop up oil prices are coming to the gas market. Some of these risks are already apparent in the futures pricing for natural gas.

While many investors watch the spot price of gas--the price of natural gas for immediate delivery--this isn’t the important price to keep an eye on.

The most commonly used measures of futures pricing are the 12- and 24-month gas strip prices. And if you look at the current prices for future deliveries you’ll see a consistent pattern of higher prices for gas than the current spot price.

The higher futures price reflects the upside risks to gas pricing during the next few years. This year a hurricane or a cold winter could eliminate excess inventories, sending gas prices shooting higher. And longer term, the North American gas production problems we’ve outlined trump shorter-term inventory oversupply.

The bottom line is that while natural gas prices may be low compared to crude, it’s not a natural low. It’s a merely a near-term issue. The big players in the gas market--our Cash Cow holdings among them--are, if anything, even better buys now.

Come and Chat

If you’d like to hear firsthand about some of our investments, particularly those in some of the more-interesting markets beyond the usual Wall Street fluff, join me on one or more of my upcoming conferences or travel opportunities--see below for the various opportunities available.

Head out to the East Coast, and join me and PF Associate Editors Roger Conrad and Elliott Gue at the Washington, DC, Money Show, September 6-8, 2007. The conference will take place at the Wardman Park Marriott, located in downtown Washington DC. Click here to register for free. Be sure to tell them I sent you.

Noble palaces, historic villages, stunning natural vistas and indispensable, one-on-one conversation: I’ll be cruising down the blue Danube Sept. 8-16, 2007, along with PF Associate Editors Roger Conrad and Elliott Gue. You’ll have unfettered access to talk about your portfolio or any other topic that comes up as you take in Central Europe’s rich culture and historic beauty aboard the River Cloud, a “five-star floating hotel.” Interested in exploring Europe and your portfolio? Contact Joseph H. Conlin Travel Management toll free at 877-814-6502 or via e-mail at nycimpresario@mac.com to finalize your plans.

Farewell

Finally, a lady who had quite an unnatural appearance that hid a lot of family troubles died at 65 years.

Tammy Faye was a lady who, according to many humorists, wore too much makeup. But behind all of it, she had to deal with numerous issues with her former husband and televangelist, Jim Bakker, including financial and personal misdoings that took away from her efforts to help others.

If you’re interested in having me or one of my cohorts address any investment or professional groups, please e-mail me at bygeorge@kci-com.com with ideas or suggestions.

Neil J. George, Jr.

Errors/Omissions: I always welcome being called on facts, figures and commentary from readers and look forward to your feedback. I can be reached by e-mail at bygeorge@kci-com.com.