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Steep Price Declines Expected to Be Fleeting As Market Braces for Major Winter Assault

Steep Price Declines Expected to Be Fleeting As Market Braces for Major Winter Assault

As parts of the Northeast and Midwest "enjoyed" a brief respite from an ongoing siege of severely cold weather, prices took steep dives Monday. But with an even worse blast of winter set to show up as early as Tuesday night, traders braced for what are expected to be fairly large rebounds.

Northeast citygates measured their declines in multi-dollar amounts, and Transco Zone 6-NYC dropped by more than $6 after racking up last week's peak quote of $17.50. The rest of the market fell by half a dollar or more, with several Midcontinent points plunging by a dollar or so.

One source made the analogy of the market being in the eye of a winter hurricane Monday. Things have calmed down for a bit after some nasty weather last week, he said, but the eye is about to move on and be followed by a return of harsh conditions that very well could give the gas deliverability system a stern test. The key difference will be that last week's bout of cold temperatures spared the southernmost states for the most part; this time almost everyone is expected to share in the misery -- and the super-heavy gas demand.

A good indicator that softness was unlikely to last beyond Monday was a rally in late numbers. Cash recovered a little bit late along with the screen, which finished the day down a little more than 30 cents after having been more than 60 cents lower in the early going, a Calgary-based producer noted. He expects Henry Hub (more than 60 cents below the Nymex settlement Monday) to close its spread from the screen by the end of the week. He didn't see as many potential price fireworks in the West, saying regional weather is not predicted to be as severe as that seen in the East. The Calgary area was unseasonably above freezing Monday afternoon, the producer said.

"There's not much load over this way," even if Florida Gas Transmission still had an Overage Alert Day notice in place (see Transportation Notes), said a utility quoting the Florida citygate in the mid $6.40s.

FGT was the only major pipeline with an OFO-like restriction as of Monday, but that situation is almost certain to change fairly quickly. Algonquin, which will bear the brunt of some of the worst upcoming weather, said Monday it "wants to draw parties' attention to the rapid drop in temperature late in gas day Tuesday, Jan. 12. It is particularly important that parties do not create due-pipe imbalances at the onset of this peak operating period given the depth and duration of this cold front." Algonquin is not allowing any due-shipper imbalance nominations, nor any incremental nominations other than no-notice firm service through its Stony Point, NY and Cromwell, CT compressor stations.

The National Weather Service certainly had no comfort to offer Algonquin and other pipes in the Northeast, saying that "the coldest air in nearly two decades is likely to affect southern New England Tuesday night into Friday. This past Friday and Saturday's weather may be been just a taste of what is likely to be even greater in magnitude of record cold." The most severe part of the weather battle is likely to be Thursday night and Friday, NWS said, when a "reinforcing surge of frigid air overspreads New England," accompanied by "dangerously cold wind chills of 25 to 30 below zero and record cold temperatures of 5 to 15 below for much of the area."

According to The Weather Channel, "ice-box air" will return to the Upper Midwest and Great Lakes Tuesday, but it expects the cold to be "somewhat less daunting than that farther east."

KeySpan announced the breaking of several volume records over the weekend in supplying gas to Long Island and New England. Long Island customers usually require about 450,000 Dth/d during January, but last Friday the utility set a record sendout of 685,700 dekatherms. Then on Saturday it reached yet another all-time high of 702,000 dekatherms. Before last week the record had stood at 667,930 dekatherms on Jan. 23.

On Friday in New England, KeySpan's natural gas demand hit 1,265,531 dekatherms, surpassing a Jan. 22, 2003 record of 1,203,383 dekatherms. A normal daily projection for this territory is about 705,652 dekatherms, KeySpan said.

The fuel buyer for a Texas electric utility had no deals to report Monday, saying the weather was just too mild for his company to need gas currently. And even though he expects load to pick up significantly later this week when a freeze arrives, he still didn't expect to need any spot gas.

"Weather in the Northeast is a little warmer, up to nearly 40 degrees or so" in Monday's highs, noted a Gulf Coast producer, but temperatures will start dropping again Tuesday and stay down through Friday. Although there is some disagreement about the duration of the upcoming arctic onslaught, the producer said it's likely to be a short frigid spell as the longer-term forecasts "show some warmth by the weekend."

The producer also commented that the Energy Information Administration's estimate of a Producing Area injection in last week's storage report was rather misleading. "It wasn't so much that the Gulf Coast was pumping vast quantities of gas into the ground, but more like producers didn't do anything," he said. "With nearly no action going in or coming out, it's not so hard to see how a small injection occurs."

Citigroup analyst Kyle Cooper's initial estimation of the next storage report is for a withdrawal in the 170 Bcf, which would compare to 136 Bcf last year and 141 Bcf in the five-year average.

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