Isn’t there a saying about the bigger they come, the harder they fall? Following a Tuesday in which quite a few Gulf Coast and Midcontinent production area points recorded their biggest numbers ever, the cash market was diving Wednesday about as fast as it had rocketed higher in the first two trading days of the week. Eastern markets, along with Waha/Permian Basin in the West, saw average declines that tended to range from about $5 to $24. Because they hadn’t soared to such stratospheric levels previously, other western points mostly saw smaller price drops of $1-3.

As indicated by NGI‘s market coverage Wednesday, signs had already shown up that Tuesday probably represented the peak of the super-burst of bullishness seen earlier this week (see Daily GPI, Feb. 26). There was the screen’s subsequent retreat from only its second-ever foray into $10-plus territory during open-outcry trading, and forecasts that the latest blast of severe winter weather plaguing most of the U.S. and Canada was due to start subsiding, although not by much in some areas such as the Northeast. Dollar-plus weakness early in Wednesday’s screen trading added to the bearishness.

However, OFOs and other restrictions on pipeline flows continued to mount. Among others, Transco issued its first-ever low-linepack OFO, and Dominion told shippers that deliverability from Steuben Storage was being cut. Northern Natural Gas, already under a longstanding System Overrun Limitation and a more recent Critical Day notice along with experiencing recent supply shortfalls, said a force majeure on Great Lakes Gas Transmission would cut deliveries at NNG’s Carlton receipt point starting Friday.

Despite rumors of wellhead freeze-offs, a couple of sources said nothing like that was happening with their suppliers.

“Not counting March, of course, this is the first time in my memory that every month in a winter has been colder than normal,” a Northeast utility buyer commented. “Usually it’s only one or two very cold months that determine whether an overall winter is below normal. That brings up this question: Would you bet that March will be warmer than normal or go with the trend for continued cold?”

An eastern power generator said, “Prices are still high, but dramatically lower than yesterday [Tuesday]. “Henry Hub traded as low as $9.00 with a WACOG near $10.50. I saw more sellers than buyers out there today [Wednesday], and the wide price swings exhibited Tuesday were notably absent today.

“The weather is beginning to moderate. I also saw some excess gas on the market as fuel switching to oil reduced demand for natural gas. We were able to switch one of our Florida plants to oil to save some money, and I heard many other instances of that in the Northeast. Storage is not really an issue for us because we use more cycleable storage that we can inject and withdraw year-round based on economics. It is more an operational issue than anything else.”

Weighing in on similar subjects, a marketer said he had been told by a Northeast power plant operator that Tuesday’s natural gas prices were equivalent to $250/bbl of oil. “At those prices, there is no doubt fuel switching was at work. The only thing that might have hampered the migration was the lack of the proper emission credits.” The biggest story for the marketer remains the lack of available pipeline capacity. “Basically no capacity is being released right now. Three months ago, you could move gas wherever you wanted.” He complained of being unable to get gas from Chicago to Dawn on Vector, “and the Great Lakes outage is not helping prices at Dawn.”

A marketer reported being able to make a couple of early Waha sales at $20-21 before prices there fell drastically to the $10-11.25 area. Quoting the Southern California border at $7.65-9.00, she said that California prices were high “only because of the eastern strength,” but that Californians still didn’t seem to be very happy about paying less than customers in the East these days.

Looking ahead to the storage report, a Midcontinent trader said his staff was estimating a 200 Bcf withdrawal, adding, “Lord knows what the market will do if they are correct. We are expecting another large withdrawal next week as well. I don’t know how much longer the fields can keep this pace. We’ll be getting down to the base gas soon.”

Volumes of gas being traded this week haven’t been notable, he said. “But then again with prices jumping around like they have been, almost everything seems bland in comparison.” Jokingly, he went on, “Did someone say we are at war? Eh, who knew?”

March bidweek remained a slow starter for obvious reasons. “Nothing is happening there yet,” a utility buyer said. “Since they delayed earlier this week due to the swing market super-volatility, everybody seems content now to wait until after the screen expiry, or maybe even until after the storage report Thursday morning.” That seems to be a setup for “a ton of March trading to happen Thursday,” he added.

The late-February “price craziness” is being translated into March, according to one source. “The problem with March is that nobody is willing to do fixed-price or even basis trading now. Everyone was doing index. The prevailing mentality is that it is better to be 10 cents out of the market than $2.00.” He quoted basis numbers Wednesday of plus $2.20-80 for Transco Zone 6-NYC and plus $2.10-25 for Zone 6’s non-NYC pool. Texas Eastern M-3 was going at plus $2.05, he said.

A western trader reported March Waha deals at $8.20-30 Wednesday. She also quoted basis deals done Monday of minus $1.65 at the Southern California border and minus 32 cents for ANR Southwest. Despite the high Northeast basis mentioned above, the trader said she expected March basis to be weaker than usual purely because of how high the Nymex was settling. A producer supported a milder view of weaker basis, saying he was hearing Florida Gas-Mobile Bay at plus 1-2 cents, down from its normal plus 6 cents.

A supplier to the Florida market said it looks like his volumes will be “way down for March because end-users obviously are just not liking these prices.” They’re avoiding buying around the $9 area as much as possible, he said, adding that one of the state’s electric utilities told him it recently had switched as many plants as possible to fuel oil.

A marketer said there’s a good change of more traders taking their Nymex contracts to physical delivery for March because that is a more binding contract than the average cash deal. He had heard Chicago for March being traded above $9.00, “but nobody wanted any part of that fixed-price risk.”

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