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Midcontinent, Most of West Soft in Near-Flat Market

Most prices in the East were little changed either up or down Friday, while significant losses dominated at a majority of Midcontinent and non-Rockies western points. The overall softness reflected a continuing dearth of weather-based demand along with the previous day's 4.1-cent descent by June futures and the usual weekend decline of industrial load.

A slight majority of points saw losses ranging from 2-3 cents to nearly 40 cents. The rest of the market was flat to nearly 60 cents higher, but except for an unusually large increase by El Paso's San Juan-Bondad pool, gains were relatively moderate in being capped around 30 cents.

Negative screen guidance will continue for Monday's cash market after June futures fell another 19.4 cents Friday (see related story).

Moderate shoulder-month weather remained the prognosis for mid-May in most of North America. About the only extremes remaining were low 100s highs in parts of the desert Southwest and freezing lows at such locations as Winnipeg in central Canada. However, highs were due to bump up into the mid 90s in interior California Saturday, according to Weather Central.

El Paso said linepack had returned to normal Friday after being high systemwide Thursday.

Saying it anticipated cooler weather beginning Sunday in its market area, Southern Natural Gas expected storage requirements to exceed its injection capability by about 100 MMcf/d for Saturday and Sunday.

Analysts were noting that the report of a 2,000-plus Bcf storage inventory was only the second time in history that inventories have reached such lofty levels in early May. The previous time was in the week ending May 12, 2006, when many storage customers were concerned about the lingering Gulf of Mexico production outages from hurricanes Katrina and Rita in the previous year.

Producers are "fighting the surplus of gas everywhere," said a Midcontinent producer. Pipelines are "getting pressured up," he added, and are allowing almost no parking services any more. Unless very hot weather comes along soon, he has a "very bearish outlook from now on."

The pipelines are battling an oversupply problem, the producer continued, saying he figured almost all of the recent price strength has been due to people buying for storage injections to get an early jump on filling their accounts. The cash market "finally" began to succumb to fundamental weakness in the middle of last week, he said. "The Nymex traders were bulls while us fundamental guys were scratching our heads" about the unlikely price strength until then, he said. The producer noted that the Midcontinent would be cooling during the weekend, but no heating load was likely to result.

A Rockies producer said he sees little hope for higher prices this year and thinks they "will get worse if we get hit with more LNG" (liquefied natural gas) imports. "LNG looks to be the real wild card this year," he added (see related story).

If storage fills before cold weather arrives next fall, producers will either have to shut in wells or sell gas at whatever they can get in the spot market because they "won't or can't" shut in because of potential formation damage, he said. "Guess what happens to spot prices if that happens?"

However, "if we don't get flooded with LNG, I think prices could turn up this fall because production should be in free-fall by then," the producer continued. There's always a chance for a long, hot summer as well as hurricanes, he said. The possibility of a low hydropower situation in California might also turn out to be a plus factor for gas consumption, he said. Also, new storage facilities coming on-line this year are expected to need more than 100 Bcf for base gas alone, according to a Credit Suisse report, "so it's not all doom and gloom," he said.

Another Midcontinent producer confessed earlier in the week to being "a bit surprised by this run-up based on the [lack of] fundamentals." Some of the upward movement by gas was probably in sympathy with the strength of crude oil prices and the ongoing fall in gas-seeking drilling rigs, he said. "We're a seller on the rallies," he added, and just can't see natural gas futures moving above a $5 handle this year, but could be wrong.

Heavy rains have been delaying well hookups in the Midcontinent recently, the producer continued. It's even been difficult getting into some sites to check meters and other equipment, he said.

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