The problem is supply and demand.

U.S. natural-gas producers continue to increase supply. Much of the new gas is coming from what were once called "unconventional" sources, such as the gas shales of Texas, Utah and Wyoming. Natural-gas production was up almost 2% in the first five months of 2009 compared with the same period in 2008, according to the U.S. Department of Energy.

That increase in supply has come as demand has crumbled. Consumption fell 4.2% in the first five months of 2009. Factories, chemical plants and steel mills account for 29% of U.S. consumption. With the recession, many of those customers are running at less than full speed. Demand from industrial customers fell 13% in the first five months of the year.

The worst of the crunch is still ahead. (For another way to judge when the oil and gas sector has bottomed, see my post "Next week it's oil, oil and more oil earnings," on using capital budgets as a leading indicator.)

Natural-gas producers with big debt loads and high interest payments haven't yet cut production. In the second quarter, companies such as Chesapeake Energy (CHK, news, msgs) have instead used higher production to beat Wall Street's earnings projections.

And producers that had the smarts or good luck to lock in higher prices with hedges haven't cut production either. XTO Energy (XTO, news, msgs), Devon Energy (DVN, news, msgs) and Ultra Petroleum (UPL, news, msgs), companies with hedges that cover a good portion of their production, all reported an increase in production, big profits from their hedges or both. XTO, for example, reported it had received an average price of $7.08 per million Btu in the second quarter because of its hedging.

Not normal times

But both of those alternatives look like they're running out of gas. All that production has to go into storage when there are fewer customers. But storage space isn't infinite, and the system is approaching its limits. That, of course, will drive Henry Hub prices for future delivery even lower.

Hedges -- and the profits they protect or generate -- expire, and the cost of new hedges has been climbing as prices have been falling. And that's if hedges are going to be available at all. As a result of congressional efforts to crack down on energy speculators, regulators such as the Commodity Futures Trading Commission have floated proposals that would restrict the number of hedges available or increase their costs.

Normally, I say the best way to profit from the collapse in natural-gas prices would be to buy shares in the companies with the biggest reserves and just wait (and wait and wait) for gas prices to rebound.

But in these abnormal times, there are two problems with that approach