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Cash Prices Soar on Bitter Cold; Many Points Show $1.50 Daily Increases

Bitter cold pushed natural gas cash prices up more than $1.25 at nearly all market locations on Monday with Northeast points up more than $2 in many cases. New York quotes jumped to more than $16/MMBtu. Despite the cash spike, however, futures staged a late reversal ending the day down more than 27 cents to $13.66 after peaking at $14.45 around 1:20 p.m. EST.

Temperatures are expected to remain 10-20 degrees below normal across a large area of the U.S. through Wednesday due to a big dip in the jet stream. The Upper Midwest was seeing single digits Monday afternoon and below zero lows were expected Monday night. This early December weather feels more like January with daytime highs in places like St. Louis only in the 20s. Daytime highs in Minneapolis will be about 10 degrees Tuesday and 20 on Wednesday.

Cash prices were pressured higher by the cold, the screen's run-up from Friday and by the return of industrial load after the weekend, said a Northeast marketer. "New York City prices on Transco got as high as $16 and that doesn't bode well for the rest of the winter," he said. "Tetco M3 was about $15.65 on average and got over $16 as well.

"Cash was very high early in the morning, but then it kind of came off a little bit when people realized that demand wasn't as high as many thought it would be. Although temperatures are below normal, it's not crazy cold. There are some forecasts out there of 10-15 days of somewhat below normal temperatures in the Northeast.

"But there are no delivery problems out there. Some of the pipelines today started going to primary receipt points, but I haven't seen any cold-weather OFOs on pipes or LDCs. If there is an extended cold spell, I would anticipate even higher prices and some delivery restrictions, but I don't think anyone will have real trouble finding gas unless we stay 10 degrees below average from now into late February or something. The gas will show up; people will just have to pay up for it."

Another marketer said he believes there's a lot of hype pumped into the market right now and that's not likely to change given the production problem in the Gulf. If that were gone, the situation could be entirely different.

"Although there's still at least 2.7 Bcf/d of gas shut in in the Gulf, there's an above average amount of gas in storage and prices are so high that there has to be substantial demand destruction to ensure deliveries," he said. "I think they are jumping the gun with these prices. Sure there are concerns about supply but the supply is definitely available. It's very reactionary right now. Any little cold front is pushing this thing up like crazy. It's about five degrees colder than normal in New York right now; big deal."

The Minerals Management Service (MMS) said Monday that 2,715.6 MMcf/d of offshore Gulf gas production is still shut in. A total of 132 platforms remain evacuated. Cumulative shut-ins now total 509.5 Bcf of gas.

Meanwhile, the National Weather Service predicts that the cold weather will persist in the East for the next couple of weeks. The six- to 10-day forecast shows below normal temps for the entire East as well as Texas, with above normal temps over California, the Northern Rockies and Pacific Northwest and normal temperatures elsewhere. The 8- to 14-day forecast is very similar in the East but with the pattern of above normal temperatures shifting over the Rockies in the West.

The Midwestern cold Monday finally triggered some premium prices in Chicago. "All last month, Chicago was trading at a discount to the near-month, but this cold has pushed it to plus 50 cents or so today," said a producer. "This is the coldest day we've had nationwide this winter so far and you are really seeing a reaction. It was even in the 40s last night in Houston and it's supposed to go down into the 30s tonight. Our markets are pulling pretty hard right now. We saw some secondary cuts on some of the pipes today because of loads."

A Michigan retailer said she was lucky to exit the market on Friday. "We baseloaded a heck of a lot and loaded up over the weekend and we are sure glad we did. The most we paid at MichCon was a $12.59 Friday, and today we could be looking at $14-something when it's all over. It's about 10 degrees below normal in Michigan and it won't be close to normal again until Friday." Most of the MichCon quotes were between the $13.30s and $13.80s Monday. Chicago ended up averaging over $14 and at times had a substantial positive basis.

"I don't think a lot of commercial, industrial and residential customers realize what they are going to be looking at in their December gas bills," the Michigan retailer said. "They are going to be really shocked when it comes out in January. I know Consumers Energy just got approval from regulators to set their wholesale commodity rates over $10/Mcf. And it's colder than normal so far, so usage is going to be up. Those two things combined are going to create a pretty loud backlash from the public, I would imagine. It's going to be a rude awakening. The economy may be in good shape now but once this winter's energy prices trickle through the system I would bet that's going to change."

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