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Most Points Fall, But Screen Spike May Rally Cash

January-ending prices were down moderately at most points Tuesday despite below-normal temperatures continuing in several market areas. The overall softness was attributed to a 25.8-cent expiration-day dive by February futures Monday and growing use of storage supplanting new purchases of spot gas.

The cash market may not take long to rally, however, after the March futures contract made its prompt-month debut by skyrocketing 80.3 cents, feeding to some extent off hyper-strength in the nearby petroleum products futures trading pits.

Transco Zone 6-New York City was again conspicuous in plummeting about $1.60 for the top loss of the day. Although its high-end quote was $10.50, the average was just short of $10. Otherwise, Rockies points tended to record most of the biggest drops, which overall ranged from a couple of pennies to nearly 30 cents. Most eastern declines were in single digits.

A few points, mostly in the Gulf Coast and Northeast, ran counter to the prevailing softness trend by recording moderate gains of up to a little more than 20 cents.

While most areas outside the desert Southwest and South Texas are due to stay cold this week, recent forecasts indicate that even worse conditions are due to arrive next week. Weather 2000 said in an advisory Tuesday that the "most intense arctic blast of [the] season" will strike the central and eastern U.S. next week. "The hemispheric pattern that has been impacting the nation since mid-January is evolving, reinforcing itself, and will deliver the most frigid temperatures we've seen yet through the Midwest and Northeast regions to kick off the first week of February," the consulting firm said.

"Over the next two weeks the hemispheric pattern will evolve into a more classic Western-Ridge/Eastern-Trough set-up instead of the broad national trough that has stretched coast to coast at times. This will slowly warm much of the western half of the U.S., and will also enable more intense cross-polar flow to dive into the eastern half of the U.S. (as we'll experience shortly)."

Rising demand is another reason to expect that Tuesday's softness will be short-lived. Monday's gas demand was the highest so far this year, according to Bentek Energy's Rusty Braziel. He said total U.S. gas demand Monday was about 97.7 Bcf/d, up from a January 2006 average of 67.2 Bcf/d. Current demand in the Southeast is running triple what it is normally.

Southern Natural Gas provided some affirmation of the higher Southeast load. It reported Tuesday that shippers in the aggregate incurred significant short imbalances during the gas days of Sunday and Monday, prompting a plea for maintaining balanced nominations. Southern also reflects how storage withdrawals have sped up considerably in recent weeks. As of Jan. 11 Southern still had 53.9 Bcf in its two storage facilities, or 90% of total working gas capacity of 60 Bcf. The pipeline reported Tuesday that as of Jan. 25 inventories had fallen to 49.3 Bcf (82%). That compares with 42.4 Bcf (71%) on Jan. 26, 2006 and 36.5 Bcf (61%) on Jan. 27, 2005, Southern said.

Bentek also said Columbia Gas flows at Leach, KY, the demarcation point where it receives gas from affiliate Columbia Gulf, are down about one-third from what they were last year, and last week they were half of year-earlier levels. Bentek's Jim Simpson, vice president of operations, said that indicates Columbia shippers have been relying more on gas from storage than Gulf Coast purchases.

Supply tightness issues also continue to crop up. EnCana said 10-14% of its production in the Denver-Julesburg Basin (DJ) was shut in earlier in January because of snow and freezing temps. The company told NGI it has about 36 DJ wells that are shut in, representing about 4 MMcf/d of gas and 150 bbl/d of oil. The Rockies region has had 60 inches of snow so far this season, along with six consecutive weekends of snow and freezing temperatures and very little melting.

However, the largest supply declines appear to be occurring in the Gulf region, where production this month has averaged about 1.5 Bcf/d less than January 2006 levels, according to Bentek Energy's database. "That's the ugly story of the gas industry," said Braziel. "It's just plan well declines" primarily in the shallow waters of the Gulf of Mexico. Bentek estimates Gulf gas production is averaging about 11.1 Bcf/d this January compared to 12.5 Bcf/d last January.

A Midwestern industrial end-user said he had read that his region was experiencing its coldest weather in 10 years (lows in the teens are due again Wednesday). Bidweek was fairly routine, he said, adding that he started making February deals early last week "and slowly plodded through it." Southern and Trunkline were unusually strong, and supplies were a little harder to come by on those pipes, he said.

A Florida utility buyer said his area was "still chilly this morning, but warming right up. He thought Florida Gas Transmission had lifted its Overage Alert Day (see Transportation Notes) because Tuesday's weather was a bit milder than expected. The state's utilities were anticipating temperatures in the low to mid 20s and scheduled gas appropriately, but when it didn't get that cold FGT had plenty of linepack again, he said.

The buyer said the futures rally leading up to bidweek "made quite a few of us standoffish about buying February baseload." He said his company bought a little bit of February gas for some customers but sold some gas owned by other customers, arriving at close to a net-zero effect.

Tim Evans of Citigroup is expecting a 205 Bcf storage withdrawal to be reported for the week ending Jan. 26.

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