There was a slightly increased threat of a tropical storm reaching the Gulf of Mexico, a bit of residual cooling load concentrated in the Texas area, and several spotty patches of overnight cold scattered throughout the northern half of the U.S. and Canada. But the price rebound that had been growing stronger from Tuesday through Wednesday still faltered Thursday.
A majority of locations dropped from a couple of pennies to about 20 cents. The Midcontinent bore the brunt of most of the largest declines, with one producer saying the regional market is troubled by oversupply and stuffed pipes. Several locations in various areas were flat to about a nickel higher.
Many industry sources had anticipated another big storage build for the week ending Oct. 18, and they got it. The Energy Information Administration's report of a 93 Bcf injection handily exceeded consensus analyst estimates in the mid to upper 80s Bcf. With only two weeks left in the traditional injection season, Nymex traders took the report as another bearish pill to swallow and sent prompt-month futures 17.1 cents lower (see related story).
What had appeared previously to be yet another tropical nonevent for Gulf of Mexico production was taking on potentially more significance. The low-pressure system that had been centered Wednesday near Grand Cayman in the Caribbean mostly was moving to the east, southeast or south, away from the Gulf. But it developed into a tropical depression overnight and quickly proceeded to make the jump Thursday morning to Tropical Storm Richard, the Atlantic's 17th named system of the 2010 season.
Although Richard was still on a southeastward track off the eastern end of Honduras around midday, the National Hurricane Center (NHC) said it expected gradual turns to the south, southwest and then west over the next 48 hours. Both NHC and The Weather Channel (TWC) agreed that such changes of direction likely would carry the storm over Mexico's Yucatan Peninsula. If it doesn't fizzle out over land, that could have Richard entering the southern Gulf of Mexico by Saturday morning, TWC said.
Although showing some signs of organization, a broad low-pressure system south-southeast of the Cape Verde Islands only had a 10% chance as of Thursday of becoming a tropical cyclone over the succeeding 48 hours, according to the National Hurricane Center.
Weather 2000 thinks the producers can relax. The steering flow environment which Richard is within "is very relaxed, limiting the storm's forward progress in any direction, but eventually Richard will commence a clockwise partial loop around the western Caribbean waters," said the New York City-based consulting firm. "Not to be confused with the Yucatan Channel (between Yucatan Peninsula and western Cuba) nor the Straits of Florida (between western Cuba and southwestern Florida], we believe it is highly unlikely that Richard will ever enter the true Gulf of Mexico (i.e., crossing the "entrance line" spanning from Merida, Mexico to Fort Myers, FL)."
Highs in the upper 80s in southeast Texas were making themselves felt to some extent in air conditioning load. Although the average price softened by slightly more than a penny, IntercontinentalExchange (ICE) reported 717,300 MMBtu traded on its platform at the Houston Ship Channel -- up a whopping 272,900 MMBtu from Wednesday. However, the same dynamic wasn't in play at the nearby Katy Hub, where prices fell nearly a dime and ICE activity plunged from 539,100 MMBtu to 433,200 MMBtu.
The ending of a high-inventory OFO by PG&E helped Malin and the PG&E citygate achieve a couple of Thursday's few gains. The points were up about 4 cents and nearly 3 cents, respectively, ICE said.
Cash quotes will be softer, that's for sure; the question is how much softer, said a Midcontinent trader who cited the big screen drop, the weekend decline of industrial load and the lack of either very hot or very cold weather. Reporting being offered weekend gas on OGT at index, he said the supplier was expecting a high price primarily because of one very high sale into OGT skewing Friday's because of little trading on the pipe, but the supplier won't get as much as he hoped.
Many people in the Midcontinent are getting stuck holding gas bought at a slight index premium and now they can't make the economics work to do anything with it, the trader said. For instance, he said he bought supply on Enogex at a small premium, intending to take the gas into Panhandle Eastern. "But I couldn't because Panhandle is full" on linepack. But he thinks the situation may start to resolve itself next month as some storage withdrawals begin.
The trader said a broker was complaining to him about not making enough sales to get his yearly bonus. "I told him not to worry about the bonus; just be glad" to still have a job.
This market will see worse price conditions before it gets better, said a Rockies producer. He agreed that cash prices will be lower Friday but used the stronger term "crashing." He said Bentek Energy, a Rockies-based research/consulting firm, is predicting that the industry will break its one-year-old storage record in the report to be released next week.
The Rockies area is getting cold enough at night (30s) to need furnaces running then, but hardly any heating at all is being used during the day when temperatures usually are reaching the 70 area, he said.
Regional producers like the Rockies-Henry Hub spread (about 30 cents for last two days), he added; it's just the low absolute numbers that bother them most. He saw some benefit coming from the scheduled start of service by Bison Pipeline in mid-November. Its moving up to 400 MMcf/d eastward from the Rockies will help strengthen the basis, he said. "Of course, you get some really cold weather in here and it won't matter what the spread is," he said; then local producers will be making fairly good profits again, at least for a while.
But for now he said he doesn't "know why anyone would want to drill gas wells" with most production-area gas priced less than $3.50. That doesn't seem to matter to some producers, though, who insist on drilling anyway even if they can't make any money at it, he said.
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