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Many Cash Points Drop 50 Cents, But Shut-Ins Remain Above 4 Bcf/d

Falling futures prices, mild temperatures, declining demand and the slow return of shut-in Gulf production sent cash prices sharply lower on Wednesday. Some points were down more than 70 cents from Tuesday's levels and most were down 50 cents or more.

However, there wasn't much of a change in daily shut-in statistics from the Minerals Management Service (MMS) or reports from pipeline companies. The MMS reported that 4,036 MMcf/d of gas production was still shut in as of 11:30 a.m. CDT Wednesday compared to 4,160 MMcf/d on Tuesday for a daily change of only 124 MMcf/d. Cumulative gas shut-ins since Aug. 26 totaled 71.67 Bcf. About 860,568 bbl/d of crude oil production remains shut in, which is equivalent to 57% of the Gulf total. MMS said 59 companies reported that 163 platforms and 16 rigs were still evacuated.

Several Gulf pipelines reported no change in shut-ins. A spokeswoman for Tennessee Gas said the pipeline still has 700 MMcf/d of gas production shut in upstream of its system. However, Bentek Energy said nominations of daily Gulf production receipts on Tennessee Wednesday still were down 1.19 Bcf/d from levels on Aug. 26 before Katrina's arrival.

Tennessee reported on Tuesday it had found damage and leaks on its 36-inch and 26-inch diameter lines, which remain shut in. On the 26-inch diameter line, leaks were found at Ship Shoal 157 and 144. El Paso spokesman Richard Wheatley said divers are inspecting the system but the process is slow going. Mainline valve 528 remains shut in due to the Port Sulphur compressor station being under mud and water. Damage also was found on multiple lines in the South Timbalier area, Tennessee said. It provided no update on the situation on Wednesday.

Texas Eastern said it still has 290 MMcf/d of gas shut in upstream of its system. However, Bentek Energy reported that nominated production receipts on Tetco Wednesday were still down about 349 MMcf/d from levels on Friday Aug. 26.

Shut-ins upstream of Southern Natural still totaled 550 MMcf/d Wednesday, the same as on Tuesday, Wheatley said. Bentek puts Sonat's shut-ins closer to 850 MMcf/d. Transco reported that 150 MMcf/d remains shut in on its system, including 125 MMcf/d on the Mobile Bay lateral and 25 MMcf/d in Louisiana, but Bentek said receipt noms were down 467 MMcf/d from Aug. 26 levels.

Meanwhile, receipts were still at zero on Mississippi Canyon, Chandeleur and Destin, although Destin said in a bulletin board notice that it is ready to resume production flows. Bentek Energy said total production shut ins, both offshore and onshore, were about 4.4 Bcf/d on Wednesday. It said about 5.57 Bcf/d of gas production was scheduled to flow Wednesday compared to more than 10 Bcf/d on Aug. 26.

Processing plant damage has been a major cause of continuing flow problems, and Dynegy said Wednesday that it probably will take three to six months to fix its Yscloskey and Venice processing plants, which handle 3,150 MMcf/d of gas production. Enterprise Product's Toca plant (1,100 MMcf/d) also remains out of service and Shell's Yellowhammer plant in Mobile Bay is waiting on repairs to a liquids pipeline.

Nevertheless, traders and marketers reported Wednesday that business was running smoother, flows were beginning to show up and demand was weakening, providing some relief to the turmoil of the last week.

"The market was a lot weaker today but I think we will see even further weakness tomorrow," said a New England marketer. "Early morning cash traded down with Nymex Access and most of the cash gas we deal with up in the Northeast was pretty much done before the Nymex pit even opened today."

He said Northeast basis returned to more seasonal levels after extreme volatility over the last week. "I think basis will stabilize at 20-50 cents over Henry Hub cash across the Northeast for the short-term. This is a comfortable level for a shoulder month. We're still near $11.50/MMBtu and that certainly isn't normal. The Nymex and the Hub probably will continue to weaken this week as production comes back online and demand stays low, unless we see another hurricane in the Gulf."

The energy industry and the entire Gulf population is keeping a wary eye on the new tropical storm that has developed offshore Florida in the Atlantic. The National Hurricane Center (NHC) reported Wednesday afternoon that Tropical Storm Ophelia, which at 2 p.m. was located 80 miles east-northeast of Cape Canaveral, FL, was expected to drift to the northwest but remain offshore through the weekend.

Other forecasters, including AccuWeather, said there is a possibility that the storm could cross the Florida peninsula and enter the Gulf. NHC previously said the storm might make landfall in northern Florida and head up into Georgia over the weekend, but it now expects the storm to "meander just off the northern Florida and southeast Georgia coasts for the next five days."

Florida has been baking in 90-degree heat for weeks so the rain may come as welcome demand relief. "Florida is going to get all that rain and I'm hoping that syphons down their load a little bit so they don't need so much gas," said a Gulf Coast marketer.

Some sources are considering the possibility the market may spike again on the potential for another hurricane and a small storage injection report on Thursday. The opening number for the ICAP storage options auction Wednesday was 30 Bcf. Citigroup analyst Kyle Cooper said he is expecting an injection between 25 and 35 Bcf. "This will compare against a build of 80 Bcf last year, a three-year average build of 81 Bcf and a five-year average build of 71 Bcf," Cooper told clients Wednesday. "Obviously considering all the effects of Katrina our confidence is very low and a number simply within our range will be welcome."

"We may get a little blip up on the storage report this week, which I think it will come in around 30 Bcf, or about 50 Bcf lower than the injection during the same week last year," said the New England marketer. "But I think storage is pretty much intact for the winter. They are saying we could get as low as 3.1 Tcf entering the winter, but that's near the five-year average."

A lot obviously depends on how long there are 4 Bcf/d in shut ins. With 37 shallow water platforms destroyed, four deepwater platforms severely damaged, at least four processing facilities out, pipelines suffering through leaks and water damage, downtime could be lengthy. "We're hearing minimum two months of downtime from many of the producers we've talked to," said Enbridge spokeswoman Terry Larson. Enbridge operates Mississippi Canyon, Green Canyon, Stingray and Garden Banks and owns part of Destin. Shut-ins behind its systems still totaled 1.2 Bcf/d Wednesday, said Larson.

"I think there will be several pipelines that will be affected for weeks to come," said a Gulf producer. "The pipelines we are still having problems with are Texas Eastern in east LA, Southern Natural and Transco at Station 85. Those seem to have the bulk of the problem areas. Tennessee also is having a lot of problems. At Transco Station 85 we are waiting on the Yellowhammer processing plant to turn on."

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