Evidence

Natural gas and oil prices are no longer connected, and strong gas supplies, the anticipation of warmer winters and a weak economy provide little evidence that prices will reconnect in the near future, according to Ernst & Young (E&Y). However, regulatory pressure to decrease carbon emissions could lift gas demand and prices, E&Y said Monday in its 4Q2009 outlook for the energy industry.

Whether one believes speculators exert undue influence over commodity prices likely depends as much on one’s market position as on any empirical evidence that speculative trading is “good” or “bad.” So rather than trying to call out market sinners, a new report on gas market speculation from the National Regulatory Research Institute (NRRI) merely offers a primer on the long-debated topic and advice for state utility regulators who must weigh the impact of hedge fund activity on ratepayers.

Whether one believes speculators exert undue influence over commodity prices likely depends as much on one’s market position as on any empirical evidence that speculative trading is “good” or “bad.” So rather than trying to call out market sinners, a new report on gas market speculation from the National Regulatory Research Institute (NRRI) merely offers a primer on the long-debated topic and advice for state utility regulators who must weigh the impact of hedge fund activity on ratepayers.

Evidence that the gas-rich Barnett Shale remains on the industry’s front burner was easy to spot last week, as a new 42-inch diameter gas pipeline project was completed in the area by Energy Transfer Partners LP (ETP) and Crosstex Energy announced plans to build an $80 million natural gas processing facility.

There is clear evidence of growing conservation efforts on the NiSource distribution system because of high natural gas prices. The utility holding company, which serves 3.8 million gas and electric customers from the Gulf Coast to New England and the Midwest, said that weather-normalized residential usage in its service territory declined by 7 million dekatherms, or 5%, from the same period last year due in part to historically high prices.

It’s still fairly cold in most markets early this week outside the southern tier of states, but some moderation of temperatures was in evidence as most points ranged from flat to down as much as 80 cents Monday. However, a fresh blast of cold air moving southward from Canada allowed Northeast citygates and some points in the Gulf Coast to continue the upward price trek they had launched in the last three trading days of last week.

Despite a lack of severe cold in most areas and mounting evidence that minuscule storage space remains for injections, most prices continued to advance Thursday. However, weakness in both the screen and physical fundamentals is expected to send the cash market lower Friday.

The end of winter is still a couple of weeks away on the calendar, and the season’s physical existence is still very much in evidence in the Northeast and Midwest and to some extent in northerly sections of the South. Strong heating load in much of the East had prices on the rise Tuesday at all points and the continuation of cold weather is expected to combine with major gains in energy futures Tuesday to extend cash market firmness Wednesday.

The first Enron Corp. criminal trial will continue this week in Houston, as prosecutors use emails and other evidence to prove two former executives conspired with four Merrill Lynch bankers to illegally increase Enron’s profits so that it could meet Wall Street expectations.