Despite temperatures remaining well below normal across most of the country, natural gas cash prices followed the Nymex futures screen lower Tuesday, with many points dipping between 50 cents and $1. The biggest drops were in the Northeast and Gulf Coast regions with smaller declines in the Midcontinent, Midwest and West.

“We traded at a similar basis to where we were yesterday over the hub, with most Northeast points $1.00-1.50 over the hub. But absolute prices fell about $1, following the Nymex down,” said a New England marketer. “Loads stayed pretty similar. Weather predictions for the next few days are about the same as what they had been expecting. I think temperatures will warm up for the weekend but still be below normal through to Monday.”

He predicted that prices would slip a little on Wednesday in response to the 17-cent futures decline Tuesday. The near-month futures contract ended the day at $13.489. For the weekend, however, prices could fall even more with the loss of industrial load, he noted.

New York prices on Transco came down on either side of $15, which was about a 75-cent daily drop. Algonquin Citygates dumped nearly a buck to average in the low $14.80s.

“Northeast pipelines still have a lot of flexibility,” the marketer said. “We haven’t been too worried about issues with the pipelines, which is kind of odd given the $2 increase in prices with this blast of cold we had. Actually, gas prices at Dracut were at $11 on Nov. 30 but the index yesterday was $15.40. That’s $4.40 in five days. Someone just told me wood pellets are the cheapest home heating fuel right now, so I’m going out to get some tonight. I’d like to buy them by the ton.”

Homeowners in the Upper Midwest have probably been burning anything they can get their hands on this week. “Prices will probably have to stay high with record low maximum temperatures in Chicago on Monday,” said a Midwest marketer. “High temperatures Tuesday in Chicago were up but only reached about 17 degrees.” Chicago’s main power company, Commonwealth Edison, said it reached a winter peak power demand record Monday of 15,542 MW between 6 and 7 p.m.

Highs only reached 7 degrees in Des Moines, IA, on Tuesday, 18 in Kansas City, and 28 in St. Louis. Much of the bitter cold is still in the Northern Plains and Upper Midwest.

“Chicago spreads to the hub are looking very good. The spread on Monday was about 35-40 cents below the hub, but we’ll probably reach 20 cents above the hub [Tuesday] for Wednesday flows. That’s a 65-cent swing, a huge change. But Northern Ventura was even trading over Chicago. Minnesota, Wisconsin, Iowa, Nebraska, the Dakotas, all of those states are frozen solid right now and unlikely to thaw for some time.

“If you are coming down Northern Border and you reach Ventura and it’s 10 cents higher than Chicago, you certainly aren’t going to be paying the extra freight to take your gas all the way to the Windy City,” he added. “Something has to give and what happened later in the day was that Chicago went up. Gas off of Alliance is still coming in like gang busters. Their authorized overrun service is pretty high right now, like 22% or about 6% greater than on Monday. There’s demand in Chicago and in Calgary.”

Transportation values are pretty attractive across the board. One source also reported a good arbitrage between the Nicor and NIPSCO citygates of about 20 cents Tuesday morning. “We were selling $13.90s at NIPSCO and buying $13.68 at Nicor within about 15 minutes of each other,” he said.

A Midcontinent producer said NGPL TexOk was extremely weak relative to other locations. “I think it will average in the $11.70s compared to Amarillo in the $12.30s and Chicago in the $13.70s. That’s very depressed. We think it’s because there’s a lot of storage gas coming out of the ground.”

The same kind of thing apparently was going on in Michigan Tuesday. MichCon traded 30 cents below Consumers, which was about $13.15. Michigan has more storage capacity than any other state. Michigan has nearly 600 Bcf of working gas capacity compared to a little more than 400 Bcf in Pennsylvania, the state with the second most storage capacity, according to NGI’s storage database. Texas is third with a little under 400 Bcf and Louisiana is fourth with a little more than 300 Bcf of working capacity.

Early estimates for the weekly storage report from the Energy Information Administration (EIA) is for a slightly smaller withdrawal than what was seen during the same week last year. Veteran gas consultant Ron Denhardt at Winchester, MA-based Strategic Energy & Economic Research is projecting a 66 Bcf withdrawal for the week ending Dec. 2, compared to 88 Bcf last year. Working gas levels are now 75 Bcf below last year but 190 Bcf above the five-year average.

Citigroup analyst Kyle Cooper said he’s expecting a 49-59 Bcf withdrawal. “This would be considered a bearish temperature adjusted withdrawal,” Cooper said. He’s expecting a withdrawal in the East that is smaller than what was reported last week by EIA (41 Bcf) for the week ending Nov. 25. The Western withdrawal, however, should be much higher than the previous week (1 Bcf), he said.

In its latest Short-Term Energy Outlook on Tuesday, the EIA said it expects working gas levels in storage to end the heating season 8.9% lower than the end of the last heating season. “Hurricane-related natural gas production losses have reduced the amount of natural gas available for the market, which increases the projected requirement for withdrawals of gas from underground storage this winter,” EIA said.

The Minerals Management Service (MMS) reported Tuesday that offshore production shut-ins declined 65.3 MMcf/d from Monday’s level to 2,650.3 MMcf/d on Tuesday. Cumulative shut-ins now total 512.099 Bcf, or about 14% of the annual offshore Gulf total.

The EIA has accelerated the projected recovery of Gulf gas supply based on the efforts of pipeline companies to reroute gas around damaged gas processing plants and other infrastructure. “We now expect shut-in Federal Gulf of Mexico natural gas production to fall to 0.66 Bcf/d (6.5% of pre-hurricane Gulf production) by March 2006,” EIA said (see related story).

The agency also predicted that demand would increase by only 1% next year while domestic dry gas production is expected to jump 4.8% in 2006 (compared to a 3.8% drop this year due to hurricane damage). Liquefied natural gas imports should grow by 54% next year to 2.74 Bcf/d, the agency said.

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