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Texas Pipeline Fire? No Worries For Cash; Futures Ease

On balance cash markets were unchanged Wednesday in spite of a fire and explosion on a pipeline in Gray County, TX. Weather conditions for the most part were mild limiting both electrical generation requirements as well as heating load. Northeast, Gulf, and California points moved little beyond a penny either side of unchanged. At the close of futures trading July had eased 2.5 cents to $2.421 and August weakened 2.2 cents to $2.474. July crude oil gained 73 cents to $85.02/bbl.

According to Kinder Morgan, the company had to declare force majeure on a portion of its NGPL pipeline in a rural portion of Texas northeast of Amarillo Wednesday (see related story).

NGPL said there were no injuries and the fire was extinguished by the afternoon. The pipeline transports gas from the Gulf Coast to the Midwest and has a capacity to transport 5 Bcf/d. Gas was being diverted to other lines.

The force majeure did little to affect prices on the NGPL system, with next-day gas on NGPL Midcontinent pool trading higher by about a penny and Oklahoma Gas Transmission flat. ANR SW and Panhandle Eastern were quoted about 2 cents higher apiece.

Although there was little price response a Midcontinent marketer said "it will probably go up tomorrow. There may have been more supplies on the line."

An eastern marketer reported that "weather was fairly mild and we haven't seen any changes. There's no major maintenance work going on. Some, but nothing more than you would expect. The bottleneck between Tennessee and Transco got repaired," he said.

Quotes on Algonquin Cigtygate and Iroquois Waddington were flat to a penny lower, and deliveries to Tennessee Zone 6 200 L fell about 2 cents.

Next-day prices at southern California points were steady as temperatures were predicted to ease to seasonal norms. PG&E Citygate and El Paso Mainline S were flat, and SoCal Border and SoCal Citygate each eased about a penny.

AccuWeather.com predicted Los Angeles' high Wednesday of 86 degrees would fall to 77 by Thursday and Friday. The normal high this time of year in Los Angeles is 78.

Gulf points were about a penny higher. Tetco E LA and ANR SE were quoted flat, but Henry and Tennessee Line 500 were both seen up a penny or more.

Thursday's inventory report is expected to show another round of injections below historical averages for the week ended June 1. Figures show that average weekly injections of about 56 Bcf will bring storage to the maximum estimated by the Energy Information Administration of just over 4,100 Bcf.

A Reuters poll of 24 analysts revealed an average 56 Bcf with a range of 45-75 Bcf. Analysts at United-ICAP anticipate a build of 60 Bcf and industry consultant Bentek Energy predicted an increase of 55 Bcf.

Longer term, analysts see coal and natural gas prices intertwined and headed lower. Much of the recent strength in natural gas has been the result of utilities switching from more expensive coal to less-costly natural gas. Indications are that this is effective with gas prices up to $2.75. However, coal prices need to stay constant. If coal prices erode, everything ratchets downward. "As expected, natgas prices continued to tumble last week. The only hope for the bulls is that the $2.090-2.030 area holds," said Walter Zimmermann, vice president of United-ICAP. He added that an unheralded casualty of this continuing bear market in natgas is the continuing coal collapse.

In order for coal to advance Zimmermann cites his bullish case as one in which "it falls to and then reverses higher from the $51.00/ton to $48.00 zone. That is our bullish case. What are its chances? We think slim to none. We might see a bear market correction up from the $50.00 area but not a major long-term trend reversal.

"We see coal as a casualty of collapsing natgas prices, the continuing implosion of the world economy and the coming tsunami of deflation. Our longer-term target for CAPP [Central Appalachian Coal] is still seen as the $21.00 level. That would fulfill the long-term wave count and return coal back to 1999-era levels," he said in a weekend report.

Forecasts continue to show warmth, but the six- to 10-day MDA Information Systems outlook predicts much-above-normal temperatures centered over Quebec and extending to the Southwest as far as Oklahoma and Kansas. "The forecast is a bit warmer across the Northeast where it appears that ongoing upper ridging will counter weak high pressure advancing towards the region late.

"The strongest warmth is still early within the mid-Atlantic, where 90s should be common. There should be a cool-down within parts of the Midwest around mid period, though this appears weak given fading blocking setup that previously helped to provide the cooler air. The Northwest looks a bit warmer at the onset but should again head cooler by later in the period. The Southeast will remain unsettled and near normal overall."

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