As the winter that wasn’t winds down, gas in storage will haveto come out like a lion during March if capacity holders are tomeet cycling requirements. Even if temperatures remain warmer thannormal the market should expect six weeks of relatively strongwithdrawals because many storage capacity owners must bring levelsdown to about 25% full.

Right now levels nationwide are about 55% full, according to theAmerican Gas Association, following a week when 97 Bcf came out ofthe ground. A year ago at this time, storage was 42% full. Thecurrent year-over-year storage surplus is 442 Bcf.

In order to exit the current heating season with the same amountof stored gas as last year (1,006 Bcf), the next five weeklywithdrawals will need to average about 157 Bcf, noted PaineWebberin a research note.

Speaking last week to the National Association of RegulatoryUtility Commissioners (NARUC) in Washington, D.C., J. MichaelRipley, director of gas operations for the Columbia LDCs, expressedconcern about the current high level of gas in storage anddifficulty LDCs will have meeting their cycling requirements comeApril 1.

LDCs have attempted to minimize the impact of 16%warmer-than-normal temperatures this winter by exercising swingoptions in their supply contracts, curtailing gas buying, and notwithdrawing gas from storage. Where possible, they’ve packed moregas in the ground, too. Ripley said February, typically the coldestmonth, saw net injections at Columbia Gas of Ohio.

“I feel safe in saying our position probably isn’t a whole lotdifferent than a lot of other local distributors.” During the1993-94 winter at the same point in time, storage inventory atColumbia of Ohio was 27% full. As of Feb 17, Columbia had “47% ofour inventory still remaining in the ground. But we still have aturnover requirement that requires our inventory to be down to 25%full or less by April 1,” Ripley said. “We’re going to bechallenged to meet that if we have weather that is warmer than 10%warmer than normal in the month of March.”

At least one trader speculates utilities will use storage gasnext month in order to hit minimum withdrawal requirements andavoid penalties. “It is a bull market right now, but with a floor.People will buy cheap gas but only to a certain level before theyhit their storage gas. We’re seeing this floor during the month [ofMarch] at about $1.65. While a lot of the gas in storage is $2.00gas, it is probably cheaper for utilities to use it up and meettheir requirements, rather that paying the penalties.” Anothertrader said storage capacity holders not forced to empty out in thespring should be injecting cheap gas now to sell in the forwardfutures months. That’s what another trader was doing. And someoneelse said the market has been widely aware of the storage overhangfor so long that it’s probably been factored into prices, whichwon’t go much lower because of it.

Storage caverns will have to do some heavy puffing if levels areto get down to where they were at the end of last year’s hearingseason, about 157 Bcf/week, noted PaineWebber. “Given the mediocreweather outlook and the fact that last year’s average comparablegoing-forward weekly withdrawals averaged 68 Bcf, it is likelythat a significant amount of the current 442 Bcf storage surpluswill remain come March 31.”

It is apparent from a transportation report earlier this monthby ANR Pipeline that it has been carefully eyeing storage levels onits system. “Abnormally high storage inventory balances and overallstorage operating concerns” caused the pipeline to continuelimiting interruptible injections under rate schedules DDS and MBS.These customers were told they have until April 1 to draw downexisting account balances to zero. Following that announcement, aMidwest trader said the move by ANR was unusual and that the pipeusually just halts injections.

At the end of January, ANR entities ANR Pipeline, ANR Storage,Blue Lake Gas Storage Co., and Steuben Gas Storage Co. combined hadcustomer storage of 129.7 Bcf (62% full), compared to 104.7 Bcf(50.3% full) a year earlier, said ANR spokesman Joe Martucci.

For those fretting over excess gas in the ground, today’sSalomon Smith Barney (SSB) Weekly U.S. Natural Gas StorageWithdrawal Forecast brings some welcome news. SSB lowered itsend-of-season storage forecast by 15 Bcf from last week’s forecastto 1,408 Bcf. Still, that’s 349 Bcf above last year’s end-of-seasonlevel and 547 Bcf above the four-year average. “If our forecastoverhang remains this large, we would expect producers to lowerprices in order to induce additional consumption and allow storagewithdrawal rates to pick up. We experienced 12% warmer-than-normalweather last week. The draw of 97 Bcf was in line with the 98 Bcfwe would have forecast based solely on the weather and was 15 Bcfmore than our forecast, which had assumed 25% warmer-than-normalweather and an additional 20 Bcf of non-heating driven demand.” Theprevious SSB forecast, dated Feb. 19, projected end-of-seasoninventory of 1,423 Bcf.

Joe Fisher, Houston (Other NGI staff members contributed to thisreport)

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