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Record-Setting Futures Fail to Avert Cash Softness

Apparently the screen's meteoric rise of more than a dollar over the previous two days, culminating in Tuesday's all-time intraday and daily settlement records for a prompt month contract, wasn't all that impressive to cash traders Wednesday. Nor was heating load staying fairly heavy across northern market areas despite prospects for a bit of moderation from earlier in the week.

The upshot was that spot prices fell across the board Wednesday -- in double-digit amounts in most cases but by more than a dollar at several locations, mostly Northeast citygates. With January natural gas futures backtracking just shy of 70 cents from their record-setting pyrotechnics of the day before, it seemed probable that the slide in cash numbers will continue Thursday.

Wednesday's softness came in spite of an ice storm expected to hit much of the East Coast Thursday from the Carolinas northward through the Mid-Atlantic and into the lower Northeast. Large sections of the Midwest and Plains can expect snowy and often windy conditions, and Canada and northern parts of the western U.S. also are predicted to remain cold. But otherwise weather will range from seasonal to moderate in the rest of the market.

A Williams Field Services spokesman clarified last week's trading situation at the Opal Plant in Wyoming, which the company operates. Gas continued to flow at the Opal Hub the entire time and nominations were possible by fax, just not via the electronic GasKit service, he said. The big reduction in Opal trading activity likely reflected the fact that "nomination changes that shippers could make were limited during the past week," he added. Normally four changes per day are allowed, but during the GasKit outage they were limited to once daily. GasKit service was restored Tuesday for nominations for Wednesday's gas day (see Daily GPI, Dec. 14).

"Traders hit the cash market pretty hard today [Wednesday]," a Midcontinent producer said in understatement. However, one should understand that most of the worst weather is in the Northeast right now, he said. "Yesterday [Tuesday] was the cold, cold, cold weather of the week" for most markets, and even though temperatures will still be below normal in northern market areas Thursday, they will not be as cold as earlier in the week He added that despite Wednesday's price softness, a counterparty in Detroit told him the city was expecting eight inches of snow that night (Michigan citygates fell a little under 60 cents for Consumers Energy and about 65 cents for MichCon).

The producer saw one clue to the cash market downturn: Midwest utilities were buying spot gas strongly last week, he said, but they nearly stopped for the weekend and are not purchasing much so far this week, "so that tells me [utility] storage pulls are going up." He also saw something else "very telling" about the midweek market: it was near freezing at times last week in the Houston area and the rest of Texas, but fairly moderate this week. That frees up intrastate Texas supplies that then can head for Northeast, Midcontinent and Midwest markets, he said.

Weather 2000 observed that while western cities such as Phoenix, Las Vegas, Los Angeles and San Francisco have seen their fair share of warm/mild days in the first half of December, the vast majority of the Lower 48 states are receiving week after week of cold air. "Temporally, New York City for example had three consecutive days breaking 60 [degrees F.] just two weeks ago, demonstrating the volatility of some form or another, which we will see again and again this winter season," the New York City-based consulting firm said.

"The consequences to a spectrum of industries of a mild winter versus a seasonable winter versus a cold winter versus an extremely cold winter are substantial, to say the least. Similar to our urgent warnings this past year about significant national summer heat (during a cool spring), we will caution ad nauseam about the danger of using only the past several years as a yardstick for preparation. Nothing witnessed in the past 10 summers could hold a candle to the national cumulative heat of summer 2005, and it is likely that winter 2005-2006 will push the envelope of 10-year history charts for several regions. Building a superb dam that can withstand a once-in-10-year flood does little good when a once-in-30-year flood arrives."

Weather 2000 then posed this question that could provide food for thought for gas interests, particularly utilities: "If individual days are colder than you thought, weeks are colder than you thought, and the entire month of December comes in colder than you thought, are you similarly prepared for when December-March ends up a lot colder than you thought?"

The Reuters new service reported that its survey of 21 industry players revealed withdrawal estimates of 124 Bcf to 205 Bcf in the storage report to be made Thursday for the week ending Dec. 9. The survey average was 171 Bcf.

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