Flat numbers at Tennessee Zone 6 and the PG&E citygate and about a nickel loss at Dracut were the only exceptions to fairly strong price gains Wednesday everywhere else in the market. Temperatures were staying fairly mild across the southern third of the United States, but with lows in the 30s and 40s forecast for Thursday north of there into Canada, it was obvious that heating demand is starting to play an increasing role in the gas price equation.

A large majority of points rose from a little less than a nickel to about a quarter, with many of the gains reaching double digits.

Cash numbers got a little extra support from the prior-day November futures uptick of 8.2 cents. Positive guidance will remain for the physical market Thursday, but will be smaller as the prompt-month contract rose only 2.6 cents Wednesday (see related story).

One source reported seeing predictions of cold weather setting up shop before the end of the month in northern U.S. market areas. Much of Canada is already experiencing near-freezing lows, he noted.

As has been the case with so many of its predecessors in this year's Atlantic tropical activity, a low-pressure system that was centered southwest of Grand Cayman at midday Wednesday appears unlikely to menace Gulf of Mexico production. The National Hurricane Center (NHC) continued to accord the system a 70% chance of becoming a tropical cyclone within the succeeding 48 hours, but its south to southeastward drift was carrying it south of Cuba toward the Atlantic, Central America or the northern coast of South America. No other significant tropical activity was expected anytime soon, NHC said.

Despite imminent measures against high linepack by both PG&E and Northern Natural Gas (see Transportation Notes), prices rose by a little less than a penny at the PG&E citygate and by nearly 15 cents at Northern's demarcation point, according to IntercontinentalExchange (ICE). It also reported trading volumes on its online platform increasing from 261,600 MMBtu Tuesday to 380,100 MMBtu Wednesday at demarc, and PG&E citygate activity soaring from 829,400 MMBtu to 1,041,000 MMBtu in the same period.

Transco also said late Thursday it was taking measures to prevent positive imbalances by shippers. Cash trading for Thursday had been done well before then, however, and Transco Stations 65 and 85 were up a little more than a dime each, ICE said; volumes slipping from 394,900 MMBtu Tuesday to 355,700 MMbtu Wednesday at Station 65 but rose from 532,700 MMBtu to 595,100 MMBtu at Station 85.

What's not to like, a utility buyer in the South asked rhetorically. Gas prices are low, storage is "virtually" full and nice weather dominates the local forecast; that's a good trio of market conditions for utilities such as his, the buyer said.

The utility has a tiny bit of storage account space left to fill by the end of October, he said, but that should be easy to do. The North's market areas may be getting quite a bit colder, but he was unable to see any cold snaps coming to the South in the near future. "We're sitting comfortable for now, all set up for winter," he added.

A trio of Barclays Capital analysts said the "beatings [on natural gas prices] will continue until morale improves." In a Wednesday advisory, James R. Crandell, Biliana Pehlivanova and Michael Zenker said, " We expect only a moderate pullback of drilling in 2011, with the rig count dropping to 900 rigs by the end of next year. This would yield continued supply growth and leave 2011 more oversupplied than 2010. Perhaps more telling, it would carry supply momentum into 2012 as well.

"2011 is expected to be littered with bearish indicators. Setting aside the displacement of coal for a moment, aggregate demand is likely to drop in 2011, largely owing to an assumed return to normal weather. The contrast of growing supply and falling demand should lead to inevitable downward price pressure." The power market will once again be called on to mop up extra supply by idling coal plants in favor of those fueled by gas, they said. "Coal displacement is expected to return to 2009 levels (about 3.5 Bcf/d), and there will likely be plenty of gas to produce another record storage fill next year (4.0 Tcf)."

Bentek Energy's U.S. Natural Gas Hub Flows chart showed nominated volumes for Wednesday shrinking at a large majority of the 23 trading locations it covers. The conspicuous exception to the overall trend occurred at NGPL-TexOK, which jumped 43% (up 240,000 MMBtu to 800,000 MMBtu), Bentek said.

Credit Suisse analyst Teri Viswanath projected an 87 Bcf storage build being reported for the week ending Oct. 15, adding that she envisions a string of heavy weekly injections that will erase the year-on-year storage deficit, "positioning the industry to test 3.8 Tcf record levels."

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