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Despite Futures Dive, Prices Get Cold Weather Boost

The onslaught of what is developing into the most severe winter weather of the 2006-07 season so far in key market areas, eclipsing even the January blizzards, trumped the previous day's 60.1-cent plunge in March futures as chief cash market influence Tuesday. The result was rising prices at nearly all points, led by triple-digit spikes at several Northeast citygates.

Restrictions against negative imbalances proliferated as the pipelines girded for what are expected to be considerable supply challenges. Southern Natural Gas and East Tennessee Natural Gas will implement OFOs Wednesday (see Transportation Notes), and Florida Gas Transmission warned market-area customers that with just-above-freezing weather forecast to move into northern Florida by Wednesday evening, they should be prepared for a potential Overage Alert Day being issued for an upcoming gas day. The Florida citygate was the only non-Northeast point to record a dollar-plus increase.

Meanwhile, Columbia Gas extended a Critical Day notice for 40 market areas into its 12th consecutive day Tuesday. The pipeline expects to require all available capacity to meet its firm service obligations, leaving zero interruptible transportation.

Several pipes that have not issued specific cold weather constraints continued to ask for shipper cooperation in avoiding negative imbalances during the siege of cold.

There were a few exceptions to the overall market gains, which ranged from a couple of pennies to nearly $4.70. The Dawn Hub fell more than a dime, and the Consumers and MichCon citygates were flat. Westcoast Station 2 in Western Canada and the PG&E citygate also were flat.

Few areas outside much of California, the desert Southwest and southern Florida are escaping the current blast of frigid conditions. A winter storm was already raging Tuesday in the Midwest, while another prominent gas consuming area, the Northeast, will get its turn Wednesday. The cold extends into the South, where Atlanta is due for a low around 23 Wednesday, and much of the West (Denver won't get above the high teens).

One source found it "interesting" that Iroquois Zone 2 had surged to the highest pricing levels Monday, but Transco Zone 6-New York City reclaimed its usual place as king of the price hill Tuesday. Zone 6-NYC quotes topped out at $18, still a far cry from the super-spike to as high as $60 early last week, in averaging nearly $16.40.

Southern provided a good indication of how the pace of storage withdrawals has accelerated greatly in recent weeks. As recently as Feb. 1 working gas capacity in its two storage fields stood at 44.4 Bcf, or 74% of total capacity of 60.0 Bcf. That continued to exceed levels for the comparable periods of 2006 and 2006. But as of Feb. 8 the balance had shrunk to 38.4 Bcf (64%), down from the 40.8 Bcf (68%) recorded on Feb. 9, 2006, Southern said. That still was greater than the 28.8 Bcf level (48%) seen on Feb. 10, 2005, it added.

A Northeast marketer said the spikes in his region reflected "stronger values than I would have expected" since Northeast temperatures aren't going to be so awfully bad (Boston, New York and Philadelphia all are expected to see lows on either side of 20 degrees and highs slightly above freezing Wednesday). Perhaps the big price jumps were a result of the fact that it will stay pretty cold into next week, he said, but added that he thought this may be the final cold-weather hurrah for the current winter season.

Usually it is cash prices that have to play catch-up in convergence attempts with the screen. But a utility buyer in the South noted that since the start of February it is Henry Hub that has commanded a substantial premium to futures. The Hub's average of a little less than $8.10 Tuesday was about 70 cents ahead of the March futures contract.

The buyer said that with the frigid weather that has mostly persisted since mid-January, "we're actually acting like a regular utility again." He added that "it seems like old times" to be pulling storage regularly in the winter. The next two days will stay very cold in his area, he said, then it will be back to normal mid-February weather for at least three to four days starting this weekend. His company is "comfortable" on storage now and has no more worries about meeting mandated withdrawal ratchets.

Citigroup analyst Tim Evans looks for a storage withdrawal of 255 Bcf to be reported for the week ending Feb. 9. Ron Denhardt of Strategic Energy & Economic Research said his call is for a 264 Bcf pull, which would exceed the weekly record of 260 Bcf set in January 1997.

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