Cash prices slipped another 10-35 cents on average Friday in response to the sharp decline in near-month futures a day earlier, 3.3 Tcf of gas in storage and the typical drop in weekend demand. By the end of the day on Friday, cash was down at least 80 cents from Monday’s levels at many locations.

The West and Midcontinent seemed to show the largest declines on Friday. Points in the Northeast posted some of the smaller drops with many locations generally backtracking about 15 cents. Dracut was the lone exception, remaning unchanged from Thursday’s price levels because colder weekend temperatures and some flurries in New England.

While Chicago was down about thirty cents Friday, price spreads to the Henry Hub were near to where they started the week at plus 14 cents. Price spreads between the Hub and the Northeast also were close to Monday’s levels. At the New York Citygate on Transco, for example, spreads to the hub were about plus 83 cents, still more than adequate to support long-haul transportation.

Price spreads in the West were quite a bit tighter because of a week of high inventory operational flow orders (OFO) and weak demand. SoCal Border ended the week at minus 25 cents, compared to plus three cents to the Hub on Monday. PG&E Citygate was down a quarter to the mid $5.90s on Friday, compared to $6.18 on Thursday, but the spread to the Henry Hub was at only about plus a nickel, compared to plus 20 cents on Monday.

PG&E on Friday called a Stage 3 customer-specific OFO with $5/Dth penalties for noncompliance because of continued high inventory. No OFO was scheduled for the weekend, however. SoCalGas continued its OFO for Saturday. SoCal customers must ensure pipeline receipts are within 110% of their expected deliveries.

Many Midcontinent points were down more than 30 cents Friday. One LDC said the last couple days of the week were cooler than normal, but the weekend was expected to be back to normal. “We saw a normal weekend fall in prices, but it also was in response to the dip in futures on Thursday.

“Up until the last day or two it’s been 20% warmer than normal in our territory,” the Midcontinent/Midwest region utility buyer said. “We haven’t had to buy any gas in quite a while, and if we don’t get some cold weather soon we are going to have to sell some. I would think there are a lot of other people in the same boat right now, at least in the Midwest. We won’t be needing to buy for quite some time.

“I’ve been bearish for the last month. I still think prices are still too high. If we don’t get some weather soon, they probably are going to crash. Even if we do get some cold weather, with all this gas in storage, prices still should come down,” the utility buyer said.

A Gulf Coast marketer agreed. “I’m very bearish right now. You may see another spike because we have fallen so hard, but there’s just no weather coming in that should push it to these price levels. I think crude and heating oil have been supporting gas futures quite a lot. People may have had some concerns about the possibility of cold weather, but so far we are not getting much.”

The National Weather Service’s six to 10 day outlook on Friday was the same as it had been all week, calling for above normal temperatures across the Midwest Northeast, Ohio Valley and Mid Atlantic, below normal temperatures in the West and normal temperatures in the eastern Midcontinent, parts of the Northern Rockies and the Gulf Coast and Southeast regions.

Although there is some cold weather pushing down from Canada, there’s very little incentive to pull gas from storage, and that may be continuing to support cash prices, said a Gulf Coast marketer.

“There’s still a pretty good storage curve out there,” he noted, referring to the $1.29 gap between current Henry Hub cash and the December futures contract. “There’s really no need to pull gas out of storage if you don’t have to. In fact you would have to be an idiot to pull gas from storage right now.” He noted that many people are doing anything they can to take advantage of the wide basis spread with Nymex. “Some people are packing the pipe. There’s some storage space out there if you dig real hard, and that’s what everyone is looking for.”

With working gas levels rising 34 Bcf to 3,327 Bcf during the week ended Nov. 5, there probably isn’t much space left, and with the cold weather during the week, many expect the next storage report will show the season’s first storage withdrawal. Despite the financial incentives not to withdraw, many seasonal storage operators require storage withdrawals to begin in November.

Storage probably cannot go much higher. It’s already at record levels based on the Energy Information Administration’s (EIA) weekly storage data series. Working gas levels are 140 Bcf higher than at the same time last year and 266 Bcf (9%) higher than the five-year average. Storage currently is at a point reached in only three (1982, 1990 and 1991) out of the last 28 years in the EIA monthly data series and is only 145 Bcf from the all-time record high set in November 1990, according to EIA monthly data.

It is an undeniably bearish situation and one that gas buyers have been hoping will eventually lead to much lower prices. “I don’t think a lot of end users locked up their purchases this winter because of the storage situation and the expectation that prices would fall,” the Gulf Coast marketer said. “Luckily they didn’t go into the traditional panic when this thing started running up last month. That would have driven it up even more. I think they just kind of sat there, put their heads in the sand and hoped that it would come back down.

“I have been getting some calls from people lately who are finally thinking about getting into this and locking in some purchases because they are still worried about the potential for $12 gas. But I haven’t seen any of my customers locking in just yet.

“Prices might actually come back to the lows seen earlier this fall. We still keep dropping, so it could happen.”

He said some of the larger buyers would have been much better off this winter if they had bought options and put some price caps in place. “Why in the world they don’t do some option-type stuff early on, where they just should do some calls instead of locking in fixed prices, I just don’t know. If they buy fixed price gas and put it in the ground, they think that’s a good thing, but if you tell them to lock in forward prices or do options, they see that as too risky a proposition, and that’s what I just don’t understand. When you throw the word option into it, they think it is risky.”

Meanwhile, LDCs spend thousands of dollars on maximum rate pipeline and storage capacity when they probably will use only 70% of it if they are lucky, he said. “They look at pipe and storage capacity as a physical asset, but a lot of that is just like an option, too, and they have to pay a much larger amount for it.”

Nevertheless, he said some of his LDC clients have been more disciplined this year in sticking to their purchasing plans, which may have contributed to the record level of gas in storage. “I have noticed that with the large guys this winter. It’s not always a good plan that they have. I’m still not on board with how they do it. But I will give them credit for not deviating a lot from their plan this year. If prices stay up where they are at, that plan is going to look pretty good.”

The Minerals Management Service (MMS) reported on Friday that there was 679.16 MMcf/d of gas shut in in the Gulf of Mexico because of damage from Hurricane Ivan. About 200,871 bbl/d of oil was still shut in and nine platforms and one rig were still evacuated, according to reports from 18 companies. MMS calculates that 118.3 Bcf of gas production and 29.3 million bbl of oil production has been deferred because of damage from Ivan.

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