Natural Gas Intelligence

November Prices End Strongly Due to Cold Blast

November 30, 2006

The advance of harsh winter weather into the central/upper Plains and Midwest, with the South and Northeast being targeted over the next couple of days, pushed prices higher at nearly all points Wednesday. The expiry spike of 32 cents a day earlier by the December futures contract contributed extra support to the cash market in trading for flows on the last day of November.

Gains were highly inconsistent across geographic market areas. Northeast citygates, where one more day of relatively moderate weather for the end of November was due Thursday, tended to see the smallest upticks (mostly in single digits). The Midcontinent/Midwest, where frigid conditions were already arriving, saw many of the largest increases along with some Rockies and Southwest basin/California points.

The Gulf Coast alone reflected the disparity of price movement in ranging from flat to a little more than 80 cents higher.

The few declines were associated with the Western Canada/Pacific Northwest markets, which had been very strong for the most part on Tuesday due to severe cold and British Columbia supply constraints. Westcoast, which reported "extremely low" linepack on Tuesday, said the situation had changed Wednesday to "Low system linepack, expecting to return to normal." It also said a restriction on T-South line delivery capacity, which was announced late Tuesday afternoon, would not extend beyond Tuesday's gas day.

Vancouver, BC, whose low was in the low teens Tuesday, was forecast to see a rise to a low of 28 Wednesday.

In addition to the few losses, western markets were quite mixed otherwise. Cheyenne Hub, which is the primary conduit of Rockies supply to the now-shivering Midcontinent/Midwest, spiked by more than a dollar because of the demand for supplies going east. Yet CIG, which declared a Strained Operating Condition Wednesday due to high heating demand on its system (see Transportation Notes), was up less than a quarter. And while the Southern California border and Permian/San Juan Basins saw hefty gains of more than half a dollar, increases at Malin and the PG&E citygate were in single digits.

There was no doubt among price sources that cash market strength will extend into the weekend. A Houston-based marketer noted that although January futures started negatively in their prompt-month debut, they started rising after bullish crude oil product inventory numbers were issued and finished the day up 31.2 cents. Between the screen spike and very cold weather becoming even more widespread through Friday, it's pretty much a given that cash prices will keep rising Thursday, he said. In fact, it's almost guaranteed, he said, because his company was seeing Henry Hub trade Wednesday afternoon for Dec. 1 flows in the $8.40s, which was about 70 cents above where the Hub averaged Wednesday.

The marketer said a colleague did a couple of small deals to end December baseload trading Thursday morning, but generally the bidweek market had grown "very quiet."

"It's cold almost everywhere," said a western marketer in discussing cash price strength. Also, pipeline capacity constraints are affecting the West, particularly the ones on Northwest north of Kemmerer (WY) Compressor Station, he said. Although the Pacific Northwest situation was improving, he said he was told that Westcoast was cutting 15% of export supply at Sumas Wednesday. Also, a staffer at the Cascade Natural Gas LDC in the Pacific Northwest said its system was at maximum throughput, he added.

Bidweek prices were still rising a little Wednesday but not much was getting done, the marketer said. He saw Sumas trade at $8.10 Wednesday, which was up from the $7.95-8.00 area Tuesday.

In case you hadn't thought about it lately (which is likely because there hasn't been any news for months), the 2006 Atlantic hurricane season ends Thursday without having caused repercussions of any significance to Gulf of Mexico production/pipeline interests. Of course, this follows the most destructive hurricane season on record.

Reuters news service said its survey of 22 industry sources found an average expectation of a 24 Bcf storage pull to be reported for the week ending Nov. 24. The range of estimates was 5-43 Bcf, Reuters said.

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