Pipelines across the nation were packed with gas last week, storage rose 7 Bcf to 3,107 Bcf, or 94% full, and mild temperatures cut demand virtually to zero. Gas prices Friday for weekend flows plummeted as much as 50 cents at some western locations to the lowest marks seen since 1996. Many locations averaged 30-40 cent declines on top of 40 cent drops the day prior, and with a long holiday weekend coming up and only slightly cooler weather expected in most markets, many traders and marketers feared the spot market still could lose significant ground in the days ahead.

Basin prices in the West dipped below the dollar mark Friday, and SoCal Border prices hit lows in the low $1.20s as traders worried about operational flow orders because of high linepack. Although PG&E and SoCalGas didn’t call OFOs for Saturday flow — PG&E called one on Thursday — some buyers were concerned that high inventories could force SoCal to call an OFO with steep penalties on Sunday.

“We just got slaughtered in the West today like everyone else,” said one marketer on Friday. “San Juan fell to $1.10, Permian hit $1.20 and the Border dipped more than 65 cents. Everyone is worried about penalties from OFOs being called over the weekend. No one wants to get caught long gas. The buyers at the southern border were particularly worried and were very cautious, so there wasn’t much trading activity. There’s no demand and everything is full everywhere.”

Rockies points gained surprising ground a couple days last week, while the rest of the market was plunging headlong in 20-40 cent increments. Traders attributed the increases to a sudden availability of about 1 Bcf of interruptible storage on Questar. But those price gains in the Rockies were quickly erased Thursday and Friday. CIG hit a low of about 90 cents Friday, and the Cheyenne Hub reached 91 cents.

AECO prices, which fell 50 cents on Thursday, started around C$2 Friday and then reached about C$1.38. Prices throughout most of the western pipe grid fell in tandem all week as warm rain washed away any sign of demand. “Temperatures are pretty mild everywhere in the West, and we’re looking at more warm rain over the weekend with temperatures in the mid 60s,” said a northwestern gas trader. “Until we get some cold weather out here, we are going to continue swimming in gas.” PG&E Citygate traded down to $1.30s Friday. Malin ranged between $1.28-53 and Kingsgate fell to the mid $1.20s.

However, balance-of-the-month prices have started to rise and were about 50 cents above Friday cash levels, indicating that some expect winter to show up late in November. “That surprises me because we do have a lot of weekend between now and the end of the month,” said a western trader. “Starting on Wednesday of next week, demand could just go deeper in the toilet. But balance of the month at PG&E Citygate popped up today to $1.83-86. It was down in the low $1.70s yesterday. I guess people thought that was a buy.”

The Henry Hub dumped more than 30 cents Friday to the $1.60s but the Hub was trading at about $2.12 for the rest of the month. “I think people are expecting some weather to finally show up, but I heard it’s really not going to be that cold. Panhandle is trading in the upper $1.30s now, but is at $1.85 for the rest of the month,” said another marketer.

She said the Houston Ship Channel was at $2.04 for the rest of the month in contrast to weekend prices in the low $1.60s. “With the swaps being higher, that makes next week kind of interesting. Despite the cold weather some are predicting though, I expect prices to be hit even harder over the long weekend, to be honest with you. There’s still quite a disconnect between cash and futures and futures would have to pull the whole strip down because all the out-months are real strong. December is the lowest month out there,” she noted.

Financial swing swaps traded stayed in the $1.95-2.00 area for Chicago, a 35-cent premium to weekend prices. Meanwhile, December basis remained at a 5-6 cent premium to the screen.

“Absolutely I think there will be another storage injection next week,” said a Midwest region player. “There is no reason to pull gas out of the ground right now. In fact, the price situation has gotten so bad that people are parking gas on the pipes and also at utilities. At Peoples, the situation has gotten so bad with so many people parking gas that they could initiate a OFO to limit receipts.”

Also contributing to the flood of gas at Chicago is the price levels in the West, which are even more depressed than those in the East and Midwest. Because California, Rockies and Permian Basin prices are all trading at such a discount to Chicago, Canadian gas is being re-routed to Chicago. “Add to that the fact that any gas that can migrate East on NGPL, CIG or Panhandle is doing so and you have a major supply glut in the Chicago area.”

Tennessee Gas Pipeline issued an operational flow order starting on Saturday because of high system linepack due to over production, reduced demand and limited storage injection capacity. The pipeline said it had limited ability to absorb operational imbalances. Customers had to keep actual daily deliveries into the system less than or equal to scheduled quantities plus 2% (or 500 Dth, whichever is greater) and actual daily takes out of the system greater than or equal to scheduled quantities minus 2% (or 500 Dth, whichever is greater) or be charged $15/Dth plus the applicable regional daily spot price for each dekatherm of gas outside of the designated tolerance.

In order to help avoid having to issue an OFO for all or a part of the weekend, Southern Natural “strongly encouraged” shippers to take action to ensure that supply and demand were in balance on Friday. The pipeline was projecting that supply would significantly exceed demand plus available injection capacity for the weekend. “Traditionally Southern has seen significant long imbalances when cash out index pricing was significantly higher than spot gas pricing,” the pipeline said. “Based on current gas prices and current index averages, it is highly likely that Southern will experience significant long imbalances on its pipeline this weekend because of the economic conditions. If flowing supply levels and demand cause Southern to exceed its available storage injection capability, we will implement a Type 6 OFO.”

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