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Cash Ends Week Mixed as Temperatures Manage Slight Increases

Cash prices ended the week mixed, leaving traders with some uncertainty about whether continued cold temperatures, particularly in eastern and midwestern markets, and the likelihood of another big weekly storage withdrawal in the next report from the Energy Information Administration (EIA) would put additional upward pressure on the market.

Northeast markets were headed in the opposite direction on Friday with most points down sharply for the weekend. Iroquois Zone 2 took the biggest hit, down more than $1.80 to near $10, which was only $1.80 over Henry Hub -- a $2.00 daily decline in the Zone 2-Henry Hub spread. Transco Zone 6 New York, which spiked to $60 on Monday, was back to under $12 on Friday. Other Northeast points also saw declines to under $10, and spreads to the hub were tighter for the weekend.

"Temperatures are moderating up here so we expect demand to start returning to more normal levels," said Melissa Mairn, manager of supply planning for KeySpan, the largest gas distributor in the Northeast. She said KeySpan New York and KeySpan Long Island both set new demand records on Monday when it averaged about 14 degrees in the KeySpan service territory. Demand rose to 1.1 Bcf/d on KeySpan New York's system and 751,000 Dth/d on KeySpan Long Island, excluding demand from power generation.

"KeySpan New England also had some very healthy sendouts through this period and had some very cold weather, but didn't set any records," she said. "In fact, Jan. 26 was the highest demand day for them, but it was only the ninth coldest they've seen. They had sendouts over 1 Bcf/d, but nothing that broke their previous record of 1.4 Bcf/d of a couple years ago." She said the prior records for KeySpan New York and KeySpan Long Island were both set on Jan. 18, 2005 at 1.09 Bcf/d and 750,000 Dth/d, respectively.

Mairn and KeySpan's Ron Lukas, vice president of regulatory relations and strategy, said the utility company is well prepared to handle any additional cold weather this winter because it's storage capacity is still 65% full, compared to a normal level this time of year of about 40-45% full. While the cold weather of the last few weeks helped reduce much-above-average storage levels, the company is still far ahead of schedule.

Connecticut utility Yankee Gas also reported that its utility storage inventories remain above normal for this time of year despite setting new demand records on its system. Spokesman Jeff Tilghman said Yankee Gas set a new demand record on Jan 26, sending out 316,189 MMBtu that day.

"With the warm weather earlier this winter we were well prepared for this cold," said Lukas. "We really didn't have any problems this time around. What we are going to need is more firm transportation capacity and we will have that for next winter. Millennium is coming online and we have the the Long Beach Line (Williams/Transco) coming on Long Island -- that's an expansion of an existing line. We also have our merger [with National Grid, which owns Niagara Mohawk and Rhode Island Gas]. It's more diversity of supply, better reliability."

More transportation capacity probably will limit future price spikes, Lukas indicated. However, he said KeySpan was able to avoid paying $60/MMBtu for gas on Transco earlier in the week and has made few if any spot purchases this month. "Everything we bought was at first-of-the-month prices."

KeySpan also heaped praise on the interstate pipelines for providing reliable service during strong demand over the last two weeks. Mairn said Texas Eastern, in particular, did a good job in quickly repairing an outage at its Grantville Compressor station.

Although numerous constraints continued to be reported on Tennessee Gas due to nominations in excess of capacity, the pipeline canceled its market area operational flow order (OFO) for Thursday's gas day. Southern Natural said Friday that it also was canceling its type 6 OFO for short imbalances for Saturday's gas day. And ANR Pipeline canceled its critical period for the Wisconsin market area Thursday. However, Northern Natural said it was continuing its strained operating condition for its Zone EF in Minnesota and Wisconsin due to continuing single-digit temperatures.

"If you have been sitting on some extra firm transport this week you probably have been doing pretty well," said a Gulf Coast marketer. "There have been some pretty good spreads and the cold weather doesn't look like it's going away. The weather may be a little bit warmer for the weekend but not much. Looks like we mainly had a normal weekend drop in demand."

He noted that most Northeast points are now under $10. "The fields zones were flat to a few cents higher, while the markets were generally down a bit. Chicago was a little weaker than Thursday, trading around $8. Nicor did nothing today; no critical day was called. Nipsco also did not call a critical day. It's not that much warmer up there, but they are managing pretty well."

Midcontinent and Midwest prices were mixed on Friday with Chicago slipping a little while MichCon and Consumers posted small gains. A MichCon spokesman said temperatures have moved from the single digits earlier in the week, when demand on the MichCon system was 2-2.3 Bcf/d, to the low 20s for the weekend and early next week. He said demand normally is about 1.5 Bcf/d at this time of year. The company's demand record is 2.7 Bcf/d.

Prices in the Midcontinent field zones dropped a few cents Friday. In the West, prices were generally up anywhere from a few cents to a dime. Opal gained more than 10 cents to near $6.20.

"I think we might see a little futures rally next week, but when all is said and done this winter, I think storage will end at a higher-than-normal level, so prices probably can't go up too much, or if they do they will have to retreat in March quite a bit," the Gulf Coast marketer said.

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