Storage levels continue down a perilous path with the AGAreporting 175 Bcf storage withdrawal last week. The report wasslightly below the Street consensus and only 2 Bcf greater thanduring the same week last year, but it left the nation’s storageinventory 25% lower than year-ago levels entering the coldest partof winter.

Working gas levels are now at 1,938 Bcf, which is 632 Bcf lowerthan one year ago and currently a record low for this time of year.

Temperatures last week were about 8% colder than last year and13% colder than the 10-year average, according to a report fromSalomon Smith Barney (SSB). “The unseasonably low temperaturesexperienced so far this season look likely to continue intoJanuary, which could result in the ‘worst case’ scenario, i.e.,natural gas storage could test physical limitations at the 500 Bcfthreshold, resulting in physical shortages of natural gas near theend of this season,” SSB said in its weekly market summary. “Thus,our $4.25/MMBtu composite spot natural gas price forecast for 2001may prove to conservative, and is likely to be revised.”

Temperatures have averaged 19% colder than the 10-year averageand 29% colder than last year since Nov. 1. Forecasts for this weekshow temperatures that will be much lower than last year and muchbelow normal. SSB predicts next week’s AGA storage report will showa withdrawal “comparable to if not in excess of the 175 Bcf figurereported today.”

SSB said every 1% deviation in weighted temperatures for thefull winter relative to the 10-year average equates to just over a50 Bcf variation in season ending storage levels unless asignificant amount of demand is knocked out of the market by highgas prices. “Thus, it would appear at this juncture that we mighttest the 500 Bcf physical limitation on storage levels and perhapsexperience actual physical shortages of natural gas later thiswinter unless Mother Nature dramatically changes course.”

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