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Most Points Down as Expected; TS Zeta Forms

All points conformed Friday with sources' expectations of softness for the initial January aftermarket, but for quite a few of them -- especially in the East -- it was hardly a case of getting "hammered," as one producer had predicted. Though most points experienced double-digit retreats, a few indices held their own Friday with losses of only a nickel to 7 cents.

Cash prices had several negative influences working on them: forecasts of a continuation of widespread mild weather into early January, normally one of the year's coldest months; the prompt-month debut of February natural gas futures Thursday that featured a dive of more than 40 cents; and the usual extra decline of industrial load that is associated with a long holiday weekend.

Padding the record-setting nature of the 2005 Atlantic hurricane season even further, Tropical Storm Zeta became the year's 27th named storm Friday, a month after the season had officially ended. With a position about 1,070 miles southwest of the Azores Islands at midday Friday and a northwestward movement at a relatively poky 8 mph, Zeta was of no immediate concern to offshore natural gas interests since it had no prospects of approaching North America for at least another week or more. Zeta packed maximum sustained winds of nearly 50 mph, and was expected to make a turn to the west-northwest during the following 24 hours, the National Hurricane Center said Friday. It added that some strengthening was possible later that day, but a weakening trend was expected to begin Saturday.

Although the general weather picture remained one of relatively mild conditions for the procession of December into January, there are some areas where genuine heating load would occur over the weekend.

Snow Friday in the Upper Midwest would be shifting toward the Great Lakes, The Weather Channel said, and there was the possibility of 1-4 inches of snow starting during New Year's Eve celebrations Saturday evening in upstate New York, northern Pennsylvania and southern New England. Much of the West was expected to endure a winter storm over the weekend, but snow was likely only near the Canadian border and in some mountainous sections. The South could anticipate staying dry, albeit rather windy, with daily highs likely to be in the 50s or greater.

Kern River was back to normal linepack levels Friday, but several other pipes continued to warn shippers that a dearth of heating load could threaten to overstuff their systems and the shippers should be alert for the possibility of pipeline countermeasures. Southern Natural Gas held off on issuing a Type 6 OFO for Saturday, but said it was still "too close to call" on whether an OFO against long imbalances would be necessary Sunday or Monday.

A Midcontinent producer found it unusual to find the aftermarket starting with MichCon delivered gas trading at least 40 cents over the Chicago citygate. He explained that during bidweek he had seen Chicago basis trade around minus 65 cents while MichCon was roughly minus 80 cents, so he had expected Chicago to remain at a premium in early January. Similarly, he saw NGPL's TexOk zone about 30 cents stronger than the Midcontinent zone in spot trading Friday, while during bidweek he had seen basis numbers around minus $2.70 for TexOk and minus $2.45 for Midcontinent.

A Calgary-based producer said he was expecting the weekend price weakness because "there's almost no demand at all." The Chicago market was a "tale of two gates" Friday, he said, with Nicor quotes averaging $9.30-40 while Alliance and Peoples deliveries were much lower around $8.60-70. He noted that Nicor had an advisory in effect capping the amount of nonfirm transport allowed, and "anyone short there didn't want to take gas out of storage that cost about $2 less" than current screen pricing." The lower-cost citygates were more reflective of the actual Chicago market, he said.

The producer said he knew of a couple of small January baseload deals being done Friday, but otherwise nearly all bidweek trading had been completed Thursday. He reported seeing baseload Chicago citygate supply being offered Friday at $10.30 and bid at $10.00, which he thought was probably too wide a spread to make a deal likely.

Calgary would be above freezing over the long weekend, which is unusually mild for this time of year, he said. He noted that February futures barely managed to move into positive territory in homestretch trading Friday after being in the red all morning, eking out a daily advance of a minuscule 0.2 cent.

A Gulf Coast trader who sells gas on behalf of independent producers said her office was officially closed Friday, "but I went in for a little while to see if anything needed taking care of." Very few traders were working Friday, as far as she could tell. Most areas are predicted to have nice weather for the next 10 days out, so she would expect prices to stay weak in early January.

First-of-month indexes weren't out yet at that point, of course, but it looked like initial January daily prices were way below where the trader expected indexes to be, she said. She assumed that some traders had to be wary of potential pipeline OFOs cropping up over the long weekend because of minimal demand for immediate burns. Luckily her company didn't have that problem, she said, because its producer clients relinquish title to their gas at the pipeline receipt point and thus aren't subject to OFOs like actual shippers are.

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