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Cold Weather Is the Driver of Cash Rally

Prices rallied at all points Wednesday from the prior day's overall softness as widespread heating load reasserted itself as the driver of an upward-looking market. Forecasts of virtually no let-up in frigid temperatures, along with Wednesday's screen advance of 21.1 cents, portend further cash gains Thursday.

Some of Wednesday's price increases hit a dollar-plus, and all of the rest were in double digits. Upticks ranged from a little more than a dime to around $1.20.

Only the lower Florida peninsula and parts of the desert Southwest are escaping the current blast of cold. The most severe conditions are being felt in the Rockies, Upper Plains, Midcontinent and western Midwest. Snow is expected to continue to blanket much of the Midwest and Northeast Thursday, and could be seen as far south as Arkansas and Tennessee, The Weather Channel said. The West will be mostly dry but with temperatures well below early-December norms in most of the region, it added.

In addition to the influence of low temperatures, prices are getting a boost from the growth of pipeline OFOs or similar actions (see Transportation Notes). So far the OFO-like activity is concentrated in the West and Midcontinent/Midwest, but could be spreading to the East and South if bitter cold is sustained much longer.

Trading at Opal remained scanty Wednesday but was starting to recover following the restoration of the EDI (electronic data interchange) server by The Williams Cos., parent firm of Opal Plant operator Williams Field Services (see Transportation Notes). The server had been knocked out Monday by flooding from a water main break at the Williams building in Tulsa. Five city blocks in Tulsa were without power from 2 p.m. Monday through 8 a.m Tuesday as a result, according to Williams spokesman Brad Church.

A 24-inch-diameter water main burst Monday at 2 p.m. due to the cold weather and dry ground, Church said. The broken main flooded an underground power vault owned by Public Service Co. of Oklahoma (AEP) and then water poured into the nearby Williams building. About three feet of water filled a room with a lot of computer equipment. "It was our building's electrical brains, our data center area," said Church. "We've pumped all that water out and we're now dehumidifying the room so we can get the systems turned back on. Half the building has power and half is still without. We do anticipate reopening the building tomorrow. It has been closed since Monday afternoon.

"Some systems transitioned over to servers in Houston. Some or our website functionality has been lost. Essential business operations have continued. We implemented a recovery plan shortly after the event. Some operations were moved offsite away from the building, some in Tulsa and some have transitioned to field locations."

Church said he didn't know if there was a shutdown of operations, adding, "I can't speak to the specifics." Williams Field Services operations are based in the building so there may have been an interruption. Williams Field Services operates the Opal plant, Discovery Pipeline in the Gulf and many other gathering and processing systems. "We do have some network and connectivity issues to work through and we have to dehumidify those data centers before we can start up that equipment or it will damage it." He said Tulsa had freezing temps Monday and temperatures were around 10 degrees Wednesday.

A western source said there was no physical interruption of Opal Plant operations, but trading at that point had been difficult for those that normally use the EDI process.

"It's cold in the market area, and that's about it," was the assessment of Wednesday's higher quotes by a producer who trades the Northeast. This is purely a weather-driven market, he said; "always has been and always will be." Over the next week temperatures in the market area will fluctuate between two and 10 degrees below normal, "but we're not going to get any significant warm-up," he added. And don't look now, he said, but more cold shots are in store towards the end of the month.

The producer admitted being kind of surprised by what he perceived as relative weakness of the Northeast market. "I would have expected more volatility and price strength" based on the cold weather, but really haven't seen it, he said. Right now the Mid-Atlantic seems to be getting hit harder by snow than the Northeast is, he said, but more snow is due in the New York City area towards the end of this week.

Recalling the rare snow that fell in Houston on Christmas Eve last year, a Gulf Coast producer said it's looking like another cold Christmas for almost everyone. You could say this cold is good for the gas market if you're on the producer end, he went on, "but I think prices are out of whack, just too much higher than they should be. Unless there is a break in the weather before then, he expects sustained firmness in prices until the Christmas holiday weekend.

The pace of restoring shut-in Gulf of Mexico (GOM) production picked up a bit, as Minerals Management Service said 53 companies had reported 2,475.08 MMcf/d in remaining outages Wednesday, down 175.22 MMcf/d from Tuesday's level. This means just under a fourth of normal GOM output of about 10 Bcf/d is still offline more than three months after Hurricane Katrina caused more than 8 Bcf/d in shut-ins over the Aug. 27-29 period (see Daily GPI, Aug. 30).

Cold weather will continue to reign across the eastern two-thirds of the U.S. and in much of the Pacific Northwest, according to the National Weather Service's (NWS) forecast for the Dec. 12-16 workweek. It predicts below normal temperatures everywhere east of a line that runs southwestward along the eastern border of Minnesota to central New Mexico. Similar conditions are forecast for all of Idaho along with the western edges of Montana and Wyoming, the eastern two-thirds of Washington and the eastern half of Oregon. Only California (excluding its northern tip) and the western sections of Nevada and Arizona are likely to see above normal readings, NWS said.

Epsilon, the record-setting 14th hurricane of an astoundingly active and costly Atlantic season that officially ended last week but refuses to observe arbitrary calendar deadlines, continued to retain the status of a hurricane Wednesday but was expected to weaken by Thursday, the National Hurricane Center said. The former record of 12 hurricanes was set in 1969. Epsilon remained of no consequence to the gas industry, staying well out in the Atlantic about 875 miles southwest of the Azores Islands at midday Wednesday.

Jim Osten, principal of natural gas services for the Global Insight consulting firm, predicted a storage withdrawal of 64 Bcf to be reported Thursday for the week ending Dec. 2. However, he noted that heating degree days (HDD) "were below or at normal last week in all regions except the West North Central, Mountain and Pacific, which were unseasonably cold. For the nation as a whole, HDDs averaged 3% below normal."

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