Crash

The unusual natural gas prices and basis spreads this summer — with a spike in New York and a crash in the Rockies — may be confusing, but they are consistent with North America’s integrated market and only reflect a “rational” market response to regional circumstances rather than any underlying manipulation by market players, according to the latest report by Energy and Environmental Analysis Inc. (EEA).

The unusual natural gas prices and basis spreads this summer — with a spike in New York and a crash in the Rockies — may be confusing, but they are consistent with North America’s integrated market and only reflect a “rational” market response to regional circumstances rather than any underlying manipulation by market players, according to the latest report by Energy and Environmental Analysis Inc. (EEA).

Following a 36-cent rise Monday through Thursday last week, the natural gas futures market braced for a profit-taking sell-off Friday. As it turns out, the market was half right. Locals and commercial traders liquidated their longs ahead of the weekend, but what the market did not bank on was continued short-covering by the non-commercial segment of the market, which soaked up enough selling to limit the day’s losses. September finished at $3.487, down 2.8 cents on the day and roughly in the middle of its $3.44-52 trading range.

Gas compression company Hanover Compressor became the latest accounting crash test dummy to come out with its head rearranged. The company announced Tuesday that it is being examined by the Securities and Exchange Commission for some apparent financial accidents in Nigeria involving a joint venture with Royal Dutch/Shell. It is restating financial results for 2000 and for the first nine months if 2001, lowering its net income by a total of $8.9 million, because it reported income — mainly from the Nigerian joint venture — that it didn’t have. As if that wasn’t enough, the company reported lower than expected earnings for the fourth quarter and cut its earnings forecast for 2002.

While not quite the “crash” that some had seen as possible, prices did fall substantially in Friday’s trading for the holiday weekend. Nearly all declines were between about a dime and 20 cents, but a few Northeast citygates took even bigger hits while Florida citygates were flat.

The cash market managed to keep up a mildly firmer facade Thursday, but prospects for a weekend crash are fairly strong, sources said. Yesterday’s quotes ranged from flat to either side of a nickel higher in most cases, with scattered points Transco Zone 6 (both pools), Transco Station 85 and MRT registering small declines.

Pardon the cash market if it was getting that old sensation ofdeja vu Wednesday. In an almost exact repeat of a week earlier,prices were rising somewhere in the vicinity of a dime in mostcases; but once again the screen took a dive following theafternoon storage report, prompting sources to predict today’strading will emulate the double-digit declines of last Thursday.

The meltdown occurred as expected Thursday in the cash market.Few points escaped with declines of less than 20 cents, with thegreatest losses of around 40 cents at the linepack-saturatedNorthern California points of Malin and the PG&E citygate,where the utility declared a systemwide OFO for today (seeTransportation Notes).

While oil and gas companies took huge hits during the 19-monthenergy price crash between 1997 and early 1999, one silver liningwas the effectiveness of government incentive programs in assistingthe beleaguered industry, said the Interstate Oil and Gas CompactCommission (IOGCC). The findings were drawn from an IOGCC reportpublished last week titled Against the Wind: The Economic Impact ofIncentives during the Oil Price Collapse.