Citadel Investment Group, T. Boone Pickens and the Merchant Commodity Fund all expect natural gas to rebound from a historic losing streak.

Hedge funds have amassed wagers totaling $3 billion on rising prices in futures markets in New York as natural gas has plunged 74 percent in the past 10 months, the biggest drop of any commodity. Citadel, a $12 billion hedge fund manager based in Chicago, added to its bet in September by taking over trades from Amaranth Advisors, the hedge fund that is closing after losing $6.5 billion in the natural gas market.

Demand for natural gas will outstrip supply as the production from U.S. wells declines in 2007, according to the chief executives of two energy producers, Devon Energy and EOG Resources. Natural gas will average $9 per million British thermal units during the next 12 months, Mark Papa, the EOG chief executive, said. Natural gas was selling below $6 per million BTU last week.

"If you told me I had to go long or short today, I would go long," betting on higher prices, said Pickens, whose Dallas hedge fund is up 120 percent this year. Natural gas may reach $10 per million BTU this winter if cold weather depletes inventories, Pickens said. He declined to predict when his fund might get back into the natural gas market after exiting earlier this year.

Natural gas may rise as high as $12 per million BTU by March, said Michael Coleman, founder of Aisling Analytics of Singapore, which runs the Merchant Commodity hedge fund.

While demand for natural gas to run power plants is increasing in North America, supply is not growing, said Michael Morris, chief executive of American Electric Power in Columbus, Ohio, one of the largest U.S. electricity producers. Prices fell earlier this year after the fifth-warmest winter on record and a cool summer reduced demand.

The amount of natural gas pumped from U.S. wells is likely to decrease 1 percent this year, and supplies from new wells are declining at a faster rate than five years ago, said David Khani, an oil and natural gas analyst at Friedman, Billings, Ramsey in Arlington, Virginia.

Daily U.S. production of natural gas fell to a 12-year low of 49.8 billion cubic feet, or 1.4 billion cubic meters, in 2005 because of damage to facilities from hurricanes, according to the U.S. Energy Department.

"The critical part is the production capacity of natural gas wells, and that is flat at best from the past winter," Larry Nichols, the Devon chief executive, said during an interview. Prices may rise "dramatically," especially if winter is colder than normal, he said. Devon, based in Oklahoma City, is one of the largest independent natural gas producers in the United States.

Natural gas demand is expected to climb 3 percent in the United States next year because of rising power production needed to support an expanding economy, the government forecasts.

Supplies are tightening worldwide. In India, generators that cost $4.4 billion to build are idle because of a shortage of natural gas on the international market. South Korea faces a shortage of liquefied natural gas until at least 2015, forcing utilities to purchase other oil- based fuels.