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Midwest Natural Gas Rises on Outage, Yet Futures Trek Lower

Natural gas for weekend and Monday delivery managed a small gain in Friday's trading as forecasters continued to call for a ridge of high pressure to lock in debilitating heat and humidity over Texas and portions of the Southeast. Also, a major pipeline into the Midwest cut deliveries.

The NGI National Spot Gas Average added 2 cents to $2.54, although scattered points in the East, West Texas and California did experience declines. Futures trading ahead of the weekend proved lackluster, with September held to a narrow 6-cent range. At the close September had fallen 1.5 cents to $2.798, and October was down 1.3 cents to $2.822. September crude oil continued its march lower, falling 79 cents to $43.87/bbl.

Prices at Midwest points firmed as a major pipeline into the area called for a force majeure. According to Genscape, "Alliance Canada and U.S. pipelines posted notice late [Thursday] that the pipe will be shut down for an unspecified period of time due to the presence of excess hydrogen sulfide on the mainline. The event constitutes a force majeure”(see related story).

Alliance is a big supplier to the region. "During the past 30-days, Alliance Canada has been flowing an average 1,792 MMcf/d across the border to Alliance U.S., with single-day flows reaching as high as 1,977 MMcf/d on the roughly 2,000 MMcf/d capacity system. The notice was issued following the close of yesterday's trading.

"Alliance flows wet gas out of BC, Alberta and Saskatchewan, primarily for delivery to the Aux Sable processing plant in Illinois, after which dry gas gets distributed to Midwest pipelines and demand markets. The shutdown will likely cause many upstream producers to shut in or direct displaced gas to the TransCanada NOVA system where that is an option."

Weekend and Monday deliveries posted solid gains. Gas at the Chicago Citygate rose a nickel to $2.89, and deliveries to Michigan Consolidated gained 8 cents to $2.97. Gas on Consumers was seen at $2.98, up 8 cents, and deliveries to Northern Natural Ventura were quoted 7 cents higher at $2.84.

A Michigan marketer said the outage "didn't impact us because we are a little long on gas and just shuffling it around. You never know you might be glad you have more than you wanted."

Points impacted by the new ability of gas on REX Zone 3 to move west rose. Gas on REX delivered to Moultrie, IL, gained 3 cents to $2.79, and gas at Douglas, IL, gained 2 cents to $2.80. Deliveries to Lebanon, OH, were quoted 6 cents higher at $2.83.

Gas on Marcellus pipes were flat to slightly down going into the weekend. Packages on Transco-Leidy Line slipped a couple of pennies to $1.18, gas on Tennessee Zn 4 Marcellus was unchanged at $1.10, and deliveries into Dominion South changed hands 3 cents lower at $1.22.

Analysts for the near term see a rangebound market with an expected cooling pattern developing that should prompt higher storage builds going forward. "We expect a quiet finish to this week's trade as the market still appears balanced with the supply surplus against five-year average levels now back to less than 65 Bcf," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning report to clients.

"While bullish-inclined traders can cite [Thursday's] supply build that came in more than 10 Bcf less than average Street ideas as a significant supportive factor, bearish participants can hang their hats on the negligible price response to a seemingly bullish number. At the end of the day, this market still looks like a standoff between the bulls and the bears that will likely be precluding a price swing of much more than 20 cents in either direction from yesterday's settlement even when extending a view out through the rest of this month.

"We will continue to advise that traders adapt to changing market conditions by considering option straddle positions designed to collect premium in a market that could potentially show little change from current levels a month from now or even two months down the road. The record power demand that contributed to yesterday's sharply downsized injection appears unsustainable with some cool temperatures now being projected in some cases through the third full week of August. And although a season-ending storage of 4 Tcf may appear out of reach, a record supply level still represents strong probability."

Gas buyers over the weekend for Texas power generation will have their hands full juggling not only oppressive heat and humidity but also fluctuating wind input. WSI Corp. in its Friday morning report said that for ERCOT, "Hot weather will remain the rule for most of the period under a sub-tropical heat dome over the south-central U.S. Daytime high temperatures are expected to rise into the upper 90s, and low to mid 100s. 'Feels like' temperatures are going to be extremely elevated here, rising into the 105-115 F range! Models are indicating some risk for less extreme heat next week as a cold front slowly noses down the central and eastern U.S.

"A diurnally driven favorable wind generation pattern will be the rule through the period, with afternoon lulls dropping to around 3-4 GW and overnight peaks near 8-10 GW. The 10 GW peaks are favored this weekend. However, flow is expected to reduce early next week and reduce generation prospects late in the period."

Hefty wind generation can't come a moment too soon as Texans continue to consume record amounts of electric power. On Wednesday ERCOT reported a record peak load of 68,459 MW, but that was beaten Thursday on two separate occasions. Between 3 and 4 p.m. CDT demand set a new record at 68,538 MW, but just an hour later demand reached another record between 4 and 5 p.m. CDT at 68,912 MW.

Late Friday demand was running 68,692 MW, ERCOT reported.

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