A wall of new US gas demand is coming, starting in 2015: exports of gas via liquid natural gas (LNG); expanded export capacity into Mexico; coal plant retirements; gas' share of electricity generation growing; industrial in-shoring; natural gas vehicles. The question is: what price does a wall of supply need to meet this demand outlook? Our hunch is that in three years the gas price should be moving from 20% of the oil price ($3.50 gas is like $21/barrel oil) to 33% (if oil is $110 that is $36/barrel or $6.00 gas). That is 71% up on the $3.50 today and 118% up on 2012 average price of gas of $2.75.

Eoin Treacy's view Veteran subscribers will be familiar with the most basic law of supply and demand; when the price of a vital commodity drops, supply increases and substitution is possible - demand will increase.

Natural gas fuelled cars, trucks, trains and ships are all now in production. Due to cost and regulatory burdens, US utilities have spent the last five years substituting natural gas for coal. The United States has become a magnet for energy intensive sectors such as chemicals, materials and manufacturing while the arbitrage between domestic and international markets acts as a commercial incentive to export.

$4 has become a psychological Rubicon for natural gas prices because so much additional supply becomes economic above that level. Nevertheless, if we follow the relationship of supply and demand to its logical conclusion, demand will eventually increase to such an extent that it will overwhelm supply and prices will rise. What we do not know is how long this will take.

In the meantime, natural gas prices remain in a steep contango. Yesterday's contract change resulted in a step in the continuation chart which is not evident on the individual futures' price. A clear upward dynamic will be required to check the decline.