Natural

The next round of restructuring is about to unfold in Canada’snatural-gas community as a white knight buyer prepares to stepforward for the country’s second-biggest supply aggregator,Pan-Alberta Gas Ltd. In fact, a team of rescuers has emerged.Senior Canadian industry sources say a producer consortium has comeup with a winning bid that will both keep the mammoth dealer inhome-grown hands and heal the worst remaining sore spot in thecommunity.

California regulators and Pacific Gas and Electric (PG&E)earlier this week protested a letter agreement between El PasoNatural Gas and Dynegy Marketing and Trading, that they claim wouldgive the latter the “unilateral right” to keep a large portion ofthe Block II capacity on El Paso off the California market withoutbeing subject to recall rights.

The August natural gas futures contract slipped 1.1 cents to$2.439 Thursday, as traders scrambled to finish their businessahead of the long fourth-of-July weekend. “Today was pretty muchjust position covering ahead of the weekend,” a broker told GPI. “Idon’t think anyone was too concerned with, or had the goal of,moving August outside of its trading range,” he said. For thatreason, he was not surprised to see technical support at $2.38hold.

Louis Dreyfus Natural Gas received a payment of $40 million forearly termination of a long-term, fixed-price gas sales contract.The terminated contract, which was with an independent powerproducer, covered 4 Bcf/year of gas which would have been deliveredthrough 2006. The total volumes of 33 Bcf, covered by thisterminated contract, are now available to be sold to othercustomers or in the spot market. Proceeds will be used to reducebank debt. The payment monetizes a portion of the value of Dreyfus’portfolio of long-term, fixed-price contracts. The value of thesecontracts is not reflected on its balance sheet. In the aggregate,the remaining contracts have a present value (discounted 10%) inexcess of market of about $125 million.

The Natural Gas Supply Association (NGSA) voiced its support forfuel- and generation-neutral nitrogen oxide requirements proposedby the Environmental Protection Agency (EPA).

$2.40 gas proved to be too much for July on Wednesday, as thespot futures contract fell 5.5 cents to settle the day at $2.336.July opened at $2.41, but that turned out to be its high trade forthe day as sellers were quick to liquidate positions and takeprofits ahead of the contract’s expiration this Friday.

“The bear market is over, the bull market has begun.” That’s howone industry broker succinctly summarised the recent developmentsin the natural gas futures market yesterday. The July contractadded to its latest fortunes by climbing another 7.8 cents tosettle Monday at $2.362. In so doing, July is now “well above anypossible downtrend line you can realistically draw,” a source toldGPI.

The Senate Energy and Natural Resources Committee will considerthe confirmation of Commissioner William Massey to a second term atFERC at a hearing this Thursday. There, he is expected to get awarm reception.

California regulators have taken steps to smooth the way for thestate’s first merchant underground natural gas storage field, thefirst wells for which are being drilled beginning this week about50 miles north of Sacramento in a depleted dry gas field in ruralnorthern California.