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Hot Weather Spurs Further Small Gains

Gains were still small, but a few points that had been flat a day earlier were beginning to record upticks of a couple of pennies or so Thursday. Cooling load was bolstered by continuing high temperatures throughout the South being joined by forecasts of huge peak temperature jumps in parts of the Midwest that were still relatively low as recently as Thursday.

Flat quotes were still quite common Thursday. Most gains remained in single digits as they topped out around a nickel, but Western Canada again recorded the largest increases of C10-20 cents or so. And the Northeast repeated having the largest declines, which ranged to as much as about a dime.

The Energy Information Administration fell short of nearly all prior estimates, especially consensus expectations in the mid 90s Bcf, when it reported a storage addition of 83 Bcf for the week ending May 27. The volume was also well below comparable numbers of 90 Bcf a year ago and 99 Bcf in the five-year average. Nymex traders picked up the apparently bullish ball and ran with it, pushing July futures 16.5 cents higher on the day (see related story).

The low-pressure area that crossed northern Florida Wednesday night had set up camp off the Louisiana coast for a short while Thursday morning, but its south-southwestward movement was carrying it away from the U.S. Gulf of Mexico production area to "several hundred miles north" of Mexico's Yucatan Peninsula by that afternoon, according to the National Hurricane Center. The agency gave it low odds (10%) of becoming a tropical cyclone within the following 48 hours.

Meanwhile, a broad and nearly stationary area of low pressure remained situated over the west-central Caribbean Sea. Although it was producing a large area of showers and thunderstorms, it had only a 20% chance of named storm development, NHC said.

Southern provided an indicator that the worst may have passed in the impacts of South Louisiana flooding on natural gas operations (see Transportation Notes). In addition to the Southern report, notices of potential curtailments posted back in mid-May by Transco and Trunkline (see Daily GPI, May 17) failed to occur after all.

Unless a major downturn in production statistics shows up, the "worst" never was especially bad in comparison to the Louisiana Department of Natural Resources' (DNR) estimation of about 252 MMcf/d possibly being shut in at Atchafalaya Basin wells in the path of flooding caused when the Army Corps of Engineers began opening gates at the Morganza Spillway last month in an effort to prevent heavy destruction in the more populated areas along the Mississippi River between Baton Rouge and New Orleans. DNR said the most recent shut-in figures submitted to it as of Wednesday showed 31.78 MMcf/d of gas and 3,822 b/d of oil offline in the estimated inundation area -- not much higher than the week-earlier report of 31.54 MMcf/d and 3,785.1 b/d.

Since an unusually chilly spring that persisted through April, the climate has been transitioning to more summer-like temperatures during much of May. And although the official start of summer isn't until June 21, it seems to have already arrived in most of the eastern U.S.

The South is in the midst of a heat wave with nearly all peak temperatures expected to be scattered throughout the 90s Friday. And even with The Weather Channel forecasting cool readings in parts of the the Upper Midwest and Great Lakes, some other sections of the Midwest can expect major jumps in temperatures Thursday, according to Madison, WI-based Weather Central. It predicts Chicago going from a high around 70 Wednesday to the 90 area, and Milwaukee, WI, soaring from the mid 50s to the mid 80s.

Most of the Northeast is expected to be limited to the 70s, but such far western parts of the region will be warming a bit to around 80.

Although the Northeast has gotten cooler since the week began, the only really chilly areas where heating demand might be expected were the northern Rockies/Pacific Northwest/western Upper Plains in the U.S. and much of the western half of Canada. Except for parts of the desert Southwest remaining hot, mild to cool conditions are prevailing in much of the West.

Excluding normal conditions in South Texas, the southern end of Florida and most of the Northeast, the National Weather Service (NWS) predicts above-normal temperatures next week everywhere east of a line running southwestward from northern Wisconsin through southeast New Mexico. The largest deviations above normal will be in the heavily gas-fired power generation area of the Southeast, NWS said. It looks for below-normal readings almost everywhere west of a line from the eastern edge of Arizona through the northwestern corner of Minnesota.

Although it declared a high-linepack OFO (see Transportation Notes), Westcoast indicated Thursday morning that linepack was already starting to return to desired levels.

Barclays Capital analysts noted that U.S. nuclear outages currently are about 19 MW, which they said was 13 MW lower than the seasonal peak of 32 MW but still roughly 9 MW higher than the five-year average. In a bearish signal for upcoming gas prices, the analysts added, "Although they [nuclear outages] are still significantly higher than the normal levels, most units should return within the next two weeks."

A bearish signal for Rockies, Pacific Northwest and Western Canada prices this month is a report that an expected onslaught of heavy hydropower supplies in the West is starting to grow, with Barclays Capital analysts speculating that surplus hydro availability is expected to be at its greatest level in June (see related story).

However, a Rockies producer disagreed with Barclays about the western hydro surge peaking in June; it will come later, he said, because it has still been snowing recently in mountain areas. And when the hydro supplies do hit their peak, they won't recede quickly but instead will fade only slowly, he added.

California is the key to the West's hydropower, being second to Washington state in its production and second or third in gas used for electric generation, the producer continued. He expects the coming reduction in California demand for gas-fired power to be even greater than last summer's, when some Rockies points were pushed as low as the $1.20 area for a while. "Certainly the last thing that Californians need" is the Bcf/d or so of gas they're supposed to start receiving upon Ruby Pipeline's startup next month, he said.

Rockies producers still have a somewhat bullish "cushion" in relatively low levels of storage inventory in the West, he said. He saw another near-term bullish sign in noting that Bentek Energy preliminarily is expecting a rather small 85 Bcf storage injection report next Thursday, for a period including Memorial Day, which is usually one of the highest injection periods of the year.

He said the big gain in futures following the most recent storage report virtually guarantees further cash price increases for the weekend.

It's gotten hotter this week in the service area of a Midwest utility, the fuel buyer said, but not yet enough to appreciably boost its sales to power generators. However, more generation demand is likely fairly soon, she said, if the days stay hot and the nights warm up a little.

She noted that a lot of people in western and southern sections of the Midwest are worried that plenty of remaining snowmelt in the mountains of the Upper Plains might cause flooding on the Missouri River, which could lead to new problems on the Mississippi River into which the Missouri feeds. There is potential for flooding damage to gas and electric facilities, as well as other industries, in the region. She recalled a time about 15 years ago when flooded railroad tracks along the Missouri didn't allow coal-bearing trains to get through to their destination plants for some time.

Bentek Energy's U.S. Natural Gas Hub Flows chart found nominations for Thursday decreasing at most of the 23 key trading points it covers. With one flat location (Niagara), the chart noted increases -- mostly small -- at only eight points. Only one rose by more than 100,000 MMBtu, with the Florida citygate up by 157,000 MMBtu (5%), although Northern Natural-Ventura came close with a gain of 99,000 MMBtu (14%). By comparison, major losses were noted at Texas Eastern M-3, down 476,000 MMBtu (19%); Transco Zone 6, down 150,000 MMBtu (10%); NGPL-TexOk, down 132,000 MMBtu (25%); and the PG&E citygate, down 117,000 MMBtu (5%).

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