Break

Producers – and the lawyers, brokers and analysts they break bread with – last week received a second helping of what was for lunch eight months ago at Houston’s Petroleum Club: a bullish outlook for gas prices.

Producers – and the lawyers, brokers and analysts they breakbread with – received a second helping of what was for lunch eightmonths ago at Houston’s Petroleum Club: a bullish outlook for gasprices.

The 1 Bcf/d Vector Pipeline project continued moving ahead asthe most likely new Midwest pipeline project to break ground andbegin construction. Westcoast Energy decided to grab a 30% equitystake and committed to take 240 MMcf/d of firm capacity in the $500million project. The transaction gives Westcoast a major stake ineach of three new gas pipeline projects that will form a newdelivery corridor to the Midwest, Northeast and eastern Canada fromthe Western Canadian Sedimentary Basin.

The furious upward rush of swing cash prices finally ran out ofsteam Tuesday, leaving most of the market in a consolidation andstabilization mode. Except for a nickel rise in Transco’s Zone6-NYC pool and milder increases on several Midcontinent pipes, flatnumbers were the order of the day at nearly all eastern points.Although the Midwest and Northeast market areas had cooled off abit since Monday, forecasts for a heat wave to re-intensify laterthis week kept prices from retreating, a marketer said.

The gas futures market toppled its Berlin Wall last week, atechnical downtrend that has confined trading since December 1996.A number of fundamental factors, including tightening supply,peaking cooling demand and some very significant technicalindicators, conspired to boost the near month contract up 34.1cents to $2.528/MMBtu and the 12 month strip up 19 cents to $2.61from the previous Friday.

Without any impetus to break in either direction, natural gasfutures continued to subsist on a steady diet of range-boundtrading yesterday at the New York Mercantile Exchange. But incontrast to Tuesday’s session, which featured the market closingnear its high trade for the day, Wednesday’s session was dominatedby selling that ushered the prompt August contract down 3 cents to$2.146. Estimated volume was light, with only 44,985 contractschanging hands.

A Mexican government decision to eliminate a tariff on naturalgas imports July 1 was heralded as good news for U.S. pipelines andMexican consumers. Currently 4%, the tariff on U.S. gas imports,was to be eliminated in 2003 following annual reductions of 1%. Thetariff went into effect at 10% with the signing of the NorthAmerican Free Trade Agreement (NAFTA). The tariff’s elimination isintended to boost gas availability to Mexico’s northern region asthe country turns more and more to gas-fired power generation.

Natural gas futures continued lower yesterday and were able tobreak through a key support level. The June contract finished 4.5cents lower at $2.191 after mapping out a $2.17 low for the day.

Feeding off momentum gained in both the regular and accesstrading sessions Wednesday, the futures market muscled higheryesterday as the May contract notched its highest price since lastNovember. After gapping higher to open at $2.215, May traded mostlysideways Thursday morning before an early afternoon buying surgemapped out yesterday’s high price at $2.23. The contract finishedjust off that level at $2.225, a 5.1-cent advance on the day.