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Mid-Atlantic Losses Lead Broad Decline; Futures Drift Lower

Gas for delivery Tuesday suffered a pattern of broad declines across most market points in Monday's trading with New England and the East taking on multi-dollar losses. Setbacks of a nickel to a dime were common in the Midwest and Gulf, but the Marcellus region managed to show some modest strength.

Overall, the market fell 38 cents. Futures continued to grind lower with March losing 1.1 cents to $2.680 and April easing 0.6 cent to $2.681. March crude oil added $1.33 to $49.57/bbl.

The Northeast and East were hit hard as the region took on deliveries of liquefied natural gas (LNG) and next-day peak power prices tumbled. A week ago Sunday the GDF Suez Neptune arrived in Boston Harbor from Trinidad and Tobago with 3 Bcf of LNG. It was the second cargo the ship had delivered since early January to the GDF Suez terminal in Everett, MA. GDF Suez is the largest supplier of LNG to North America.

LNG cargoes into the region are at their highest levels in three years. In addition, one of the two Massachusetts offshore, floating LNG terminals, Excelerate's Northeast Gateway, handled its first delivery since 2010.

Gas for delivery at the Algonquin Citygates shed $1.73 to $10.96, and gas at Iroquois Waddington fell $5.00 to $7.42. Gas at thinly traded Dracut fell $1.14 to $10.66.

Gas bound for New York City on Transco Zone 6 tumbled $6.51 to $8.94, and deliveries to Tetco M-3 fell $3.44 to $4.19.

The Marcellus came out in the black. On Millennium, Tuesday parcels fell 4 cents to $1.45, and gas on Transco Leidy added 9 cents to $1.25. On Tennessee Zone 4, Marcellus gas changed hands at $1.20, up 11 cents, and on Dominion South gas was quoted at $2.19, up 11 cents.

Next-day peak power prices fell hard. Intercontinental Exchange reported that Tuesday peak power at ISO New England's Massachusetts Hub dropped $18.88 to $96.23, and next-day peak power at the PJM West terminal fell $9.05 to $52.36.

Power loads in New England were seen declining. ISO New England forecast that Monday's peak power load of 19,880 MW would recede to 19,650 MW Tuesday and fall to 18,830 MW Wednesday. Loads in New York were forecast to rise Tuesday before retreating Wednesday. The New York ISO forecast Monday's peak power requirements of 22,551 MW would reach 22,732 MW Tuesday before dropping to 22,025, MW Wednesday.

Next-day Texas prices softened. Gas at Carthage was seen flat at $2.53, and deliveries to NGPL TX OK fell 3 cents to $2.54. Gas at Katy shed 3 cents to $2.51. At the Houston Ship Channel, Tuesday packages added a penny to $2.54.

It looks like the force majeure declared by REX Pipeline will be in effect for a couple of more days. According to industry consultant Genscape, the problems "could be resolved by Feb. 4. REX noted a faulty weld was the cause of the failure in its Segment 300 in eastern Missouri that cut scheduled flows to zero. Since the event started, Rockies outflows on REX have dropped to 442 MMcf/d from the prior 14-day average of 1,231 MMcf/d.

"Although some of the displaced gas may be getting wheeled to CIG and TransColorado, it appears the bulk of the displaced volumes are getting backed into the Meeker Plant in northwestern Colorado. Downstream, interconnecting pipelines that receive gas from REX have compensated for lost supply by increasing their upstream receipts from interconnects. REX east-to-west flows out of Clarington have also increased and pushed as far west as the Indiana-Illinois border," the firm said.

Overnight weather forecasts turned slightly warmer near term, and forecasters don't see much chance of major cold until mid-February. Commodity Weather Group in its Monday morning outlook said, "A warmer storm track into the eastern U.S. right now is contributing to some demand losses compared to last Friday's outlook, but there are other changes later this week and into next week also leading to a few more losses here and there. The overnight guidance edged back a bit warmer than what they offered yesterday for the Midwest to East Coast in both the six-10 and 11-15 day ranges.

"The colder surface temperature anomalies in the Midwest on the various models for the six-10 day are thought to be overdone though due to over-weighting recent snow pack additions. Otherwise, there is also some slight delay on the rebuild of the Alaskan ridging pattern. The Canadian ensemble is the fastest, and hence coldest, model option this morning for the 11-15 day, but the consensus seems to favor a rebuild for the week of Monday, Feb. 16. allowing colder risks to build stronger for especially the second half of the 11-15 day," said Matt Rogers, president of the firm.

Although physically crude oil and natural gas have no economic substitutability, risk managers are keeping an eye on petroleum prices for any signs of support for natural gas. "On Friday, the energy complex spiked higher, driven by product buying. Time will tell whether the complex has 'bottomed out' and if rising distillate prices will help support natural gas prices," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. "If a rising complex and colder temperatures do not support the gas market early next week, we could see further weakness over the short term.

"On a trade basis, we will maintain our long positions for another week. If we don't see a rally above the $2.80-2.85 level by the end of next week, we will go to the sidelines."

DeVooght counsels trading accounts and end-users to continue to hold a long March $4.20 call and short March $3.90 put options.

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