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Screen Dive Portends Continuance of Cash Losses

The downhill slope on which virtually all points were launched Wednesday got even steeper across the board Thursday, and promises to be even more slippery Friday following a dollar-plus swan dive by January natural gas futures. Heating load is diminishing dramatically as the harsh cold in which many markets began the week continues to become past tense.

Triple-digit declines were common as prices fell anywhere from about 40 cents to more than $2. Other than Midwest citygates tending to see most of the smallest drops, the softness was fairly evenly spread among geographic market areas.

The Energy Information Administration said 162 Bcf was withdrawn from storage in the week ending Dec. 16. The volume was within the range of prior estimates and was not all that far below consensus guesses centered in the 170s Bcf range. However, it took little prodding for Nymex traders to send the January contract screen into a headlong plunge that left it down $1.348 to 8 cents under the psychological level of $13/MMBtu.

That practically guaranteed an extremely weak cash market Friday, when combined with falling fundamental weather support and the extra reduction of industrial load associated with a long holiday weekend.

The West is typical of the moderating weather trends. Not only will regional temperatures be 5 to 20 degrees above average through the Christmas weekend, according to The Weather Channel, but some date-specific record highs may be recorded in the Southwest. The Midwest is due to be in transition Friday from the previous cold to milder conditions, although a disturbance could bring icy precipitation to the northern Great Lakes area. The Northeast also may see a little weekend snow, but will be warming up in a prelude to more severe cold returning around the middle of next week. Meanwhile, the South was forecast to have one more cold night Thursday before temperatures above seasonal averages begin to dominate Friday.

A Calgary-based producer indicated the turnaround from previously price-supportive cold by noting that the temperature was about 54 degrees F Thursday afternoon. He said there was something of a "strange split" in Chicago trading Thursday: One area utility, Nicor, will be closed Friday, so it was trading for a five-day strip while the rest generally bought one-day supplies (another source agreed, but said there were also a few five-day flow deals done by the utilities that will remain active Friday).

The producer said his company was not actually trading anything yet for January, but he understood that a lot of index-based transactions had already been completed. He was hearing Chicago citygate basis of minus 75-70 cents, but said that if the screen keeps dropping like a rock as it did Thursday, he would expect negative basis to get tighter.

Between the screen and milder weather, weekend prices should be much lower, a Midcontinent producer said. He sees the potential for "some irrational selling" Friday because some utilities will be taking an early holiday. He wished that weekend weather was going to be colder in the market areas, not from the perspective of supporting gas prices, but because during a low-demand holiday weekend gas could get backed up on pipes and create transport constraints that aren't being seen at present. On the other hand, he went on, there could be some good storage arbitrage opportunities Friday because many pipes and utilities may be looking to inject with prices getting so much lower and little need for immediate burns.

Contrary to some opinions expressed earlier in the week, the Midcontinent producer did not think all that much trading has been done for January yet. However, he was already active in that area Thursday, reporting basis of minus $2.36 for NGPL Midcontinent, minus $2.30 for ANR Southwest and minus $2.34 for Panhandle Eastern. Midcontinent indexed numbers are looking weak so far, he said, quoting index-minus-2-cents deals for NGPL Midcontinent and Panhandle Eastern. However, there's a little bit of premium at the Chicago citygate, he said, quoting Nicor as being bid at the NGI index plus 3 cents, Peoples at plus 2.5 cents, and NIPSCO bid and offered at plus 4 and 5 cents respectively. The MichCon citygate is trading at index minus 6 cents, he said, and generally agreed with the Canadian producer in reporting basis of minus 75 cents for Chicago.

Gulf of Mexico shut-ins caused by Hurricanes Katrina and Rita have finally fallen below the 2 Bcf/d level, but this week's gains were still rather paltry. Minerals Management Service (MMS) said 48 companies reported 1,962.01 MMcf/d in remaining outages Thursday. That was down only 52.33 MMcf/d from Monday's report and 265.73 MMcf/d less than on the previous Thursday. Cumulative deferred production since Aug. 26 now totals 547.073 Bcf, equivalent to 14.988% of the Gulf's normal yearly output of about 3.65 Tcf, MMS said. Because of the holiday being observed Monday, the agency will not report shut-in statistics again until next Thursday at 1 p.m. CST.

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