After one of the most depressed periods in almost a decade, natural gas prices turned upward in September and are likely to finish the year well-above 1994's rock bottom winter levels.

"We will probably have weather a lot closer to normal than last winter, which was the third-warmest in history," said Ronald Barone, a gas industry analyst at Paine Webber Inc., New York. "The chances of a repeat of last winter are very remote."A major factor this season, he said, is the absence of El Nino, the warm, inshore Pacific current that's given credit for causing a warmer winter temperatures in North America.

This year through August, spot wellhead gas prices have averaged $1.36 for a million British thermal units, their lowest level, adjusted for inflation, since 1977 and down sharply from the $1.87 average over the same period last year.

After that, prices collapsed in the last four months of 1994, a period when El Nino was clearly present. The September through December months averaged just $1.43 for a million Btus, their lowest for that period since 1988.

That number should not be too difficult to beat this year, said Mr. Barone, and wellhead prices might even rise above $2 for a million Btus if temperatures turn cold.

So far this season, September's spot wellhead composite averaged $1.45 for a million Btus, up from $1.34 in September 1994, Natural Gas Week figures show.

"September is the first month that prices for 1995 are above 1994 levels," said Mr. Barone. "In the near term, storage inventories are well below where they were last year, and that's still building. Prices could strengthen over the next six to eight months because we've got some real easy comparisons."


Those expectations were confirmed by futures prices on the New York Mercantile Exchange, where contracts for November delivery traded at close to $1.74 for a million Btus on Friday afternoon. Forward months also anticipated firm demand this winter, with December contracts trading at $1.88, and January at $1.93.

To get from futures prices on the Nymex to cash prices at the wellhead requires a deduction of 15 cents to 22 cents for each million Btu, for transportation to the Nymex distribution point at Henry Hub, La., said Richard Sutton, a principal at Jofree Corp., a gas industry consulting firm in Houston.

"Prices typically peak out in December," said Mr. Sutton. "We think it could go to $1.74 at the wellhead, or about $1.94 in the futures market, and next year we think wellhead gas prices could average $1.63, up about 12 percent from the $1.45 average we expect this year."


One thing that could alter that scenario, he said, would be a late season hurricane in the Gulf of Mexico that threatened gas wells along the U.S. Gulf Coast. Fears over storms in that region, which produces 25 percent of domestic supplies, have already caused at least two price spikes this summer, he said.

"If that happens, you'll see prices go up, but they won't stay there for long," said Mr. Sutton. "They'll return to what the economists call an equilibrium price."

But no matter what the weather has in store for the winter ahead, gas supplies will be more than adequate, said Charlotte LeGates, spokesman for the Natural Gas Supply Association, a Washington, D.C., group that represents domestic gas producers.

In fact, the capacity of U.S. gas producers to deliver those supplies is about 3.2 percent more than potential peak demand, according to the NGSA's most recent survey.

"We've got the gas, believe you me," she said.

At the same time, however, deregulation in the gas industry over the last three years has created a new understanding among local gas utilities and their customers that completely reliable gas deliveries on the coldest day of the year can be expensive.

"Our idea of reliability has been 100 percent of the gas, 100 percent of the time that you want it, and when consumers didn't get that there were a lot of complaints," she said. "Today, they and the public service commissions are becoming aware that you get the reliability that you pay for, and that it can cost a lot of money."


These days, gas distributors must take responsibility for arranging their own gas transportation and storage, something that was done by pipeline companies in years past. But the cost of maintaining that degree of reliability must be added to the bills of residential, commercial and industrial customers each month, she said.

"Consumers may be ready to accept that there could be some gas shortages in winter, rather than pay for that reliability all year round," said Ms. LeGates.

"In the very cold winter two years ago, gas consumers were told to turn down their thermostats, and they complied with little difficulty," she said. ''When you force consumers to confront the reality that there's no free lunch, they can deal with it."