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Prices Keep Falling as Cold Moderates a Bit

It's still pretty cold in most market areas and temperatures are headed lower again Friday in the Midwest, but some moderation from the ice storm that descended on much of the U.S. earlier in the week, combined with Wednesday's 40.4-cent dive by February futures and growing use of storage in lieu of new purchases of spot gas, allowed cash prices to continue their descent at all points Thursday.

Wednesday's dollar-plus plunges in the Northeast had subsided, as all of Thursday's declines were in double digits. They ranged from a little more than 20 cents to nearly 95 cents, with quotes in the Rockies, West Texas and Northeast taking the biggest hits.

Evidence of easing load came from El Paso and MRT lifting OFO-like constraints (see Transportation Notes) and Kern River reporting a return to normal linepack systemwide.

It was obvious that bad weather conditions were easing in the Lone Star State. Waha, El Paso-Permian, Katy and the Houston Ship Channel, which had held up most firmly amid Wednesday's softness thanks largely to high intrastate Texas demand, fell anywhere from 55 to 80 cents or so Thursday.

The Energy Information Administration's estimate of an 89 Bcf storage withdrawal for the week ending Jan. 12 surpassed consensus expectations centered around 80 Bcf. That was hardly a shocker to the market, but Nymex traders gave the report a modestly bullish response in sending February gas futures 9 cents higher.

Making a call on Friday's cash price direction was difficult. Warming trends in the Rockies and South, where snow and/or ice covered much of the Carolinas and north Georgia Thursday, will be arrayed against colder weekend temperatures in the Midwest and Northeast. The physical market also will have modest support from Thursday's screen, but the factor of light industrial load associated with a weekend will come into play.

A Rockies marketer said his region is starting to warm up a little, but remains very cold (Denver's high around 27 Thursday is expected to rise to 35 Friday). He hadn't heard any new information this week about wellhead freeze-offs in the Rockies, but "I would have to think the situation hasn't changed since late last week" when there were production losses from freeze-offs. He noted that Pacific Northwest LDC Cascade Natural Gas had lifted an OFO. Northwest Pipeline still had entitlements in place on its system, the marketer said, but because of the Cascade action he expected Northwest to end the entitlements soon.

There might be a small rally Friday in other sections of the market, he added, but he thinks Rockies prices will keep dropping.

A utility buyer in the South commented, "It's cold, and we're glad of it." Below-normal temperatures should continue through about the end of January, he said, which "sure is a nice change" for his company's throughput after such a mild start of winter. The recent frigid weather has allowed the utility to make good progress on meeting its storage withdrawal ratchets.

It helped that TGT has eased its storage account requirements, the buyer continued. The pipeline's tariff normally requires customers to take 68% of their inventories out by April 1 each year, but a waiver announcement by TGT earlier this week said the volume had been reduced to 50%. "It's helping our operational flexibility," he said, allowing the company to choose either to pull from storage or to buy spot gas, whichever is most advantageous at the time.

Noting the unusual cold in Southern California this week that has seriously damaged the state's winter fruit and vegetable production, a West Coast source said such conditions are due to continue through the weekend, but a warming trend is forecast for next week. His company was still seeing plenty of power generation demand because of the weather, he said, but because of heavy storage inventories, "nobody's panicking." He believes that next week's storage report "could easily jump" to a 120-150 Bcf withdrawal because of the current week's weather and reports of heavier storage use.

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