Price

The recent price spikes and generation outages in the Midwestpower market have opened the door wide for the natural gas industryto capture a greater share of the industrial energy market, says asenior economist.

Aquila Gas Pipeline might be taken off the auction block inlight of depressed gas liquids prices and the fear a sale pricewon’t do justice to the company’s value. Indeed, the company’ssecond quarter results were something less than stellar. Net incomewas $1.4 million, down from $7 million in the second quarter of1997. This despite the fact gas throughput and marketed volumesaveraged a record 1.4 Bcf/d, compared to 1.2 Bcf/d in the secondquarter of last year. However, total system throughput was 446MMcf/d, compared to 534 MMcf/d in the second quarter of 1997. Anincrease in gas volumes marketed off system to 954 MMcf/d from 642MMcf/d in the second quarter of 1997 reflects the continuedincreased emphasis on marketing activities. Liquids productiondecreased to 25,000 barrels/d from 38,000 barrels/d 2Q 1997. Lowliquids prices were the reason for the decline.

Buyers appeared to be winning most of the price standoffs inlate bidweek business Thursday. Michigan citygates were down to thelow $1.90s after deals had been done earlier in the mid $1.90s, amarketer said. Another felt it odd to see Michigan trading at aslightly negative basis for a change after hitting plus 24-25 insome cases last winter. But several traders agreed there’s nomystery to the basis weakness; “it’s all that storage” in thestate, one commented. We’ll continue to see Michigan beingdiscounted relative to Chicago deliveries for quite a while, againfor the storage reason, he said.

September debuted as the spot Nymex contract Thursday in afairly uneventful fashion, by first trading briefly higher, beforelight selling pushed the market down to settle at $1.906, a 2.7cent loss for the day. Traders continue to point to the currentdowntrend that “exerts its influence on this market at every turn,”as a reason for the move lower. “[Thursday] there was not muchimpetus to move higher or lower, but the mentality in this marketcontinues to be buy little dips and sell the rest of the time,” atrader offered.

TransCanada PipeLines said yesterday the loss of two shipperagreements enabled it to slash the price of its 1999 expansionproject by C$575.9 million, but it still anticipates being able toprovide 76% of the capacity (208 MMcf/d) of the original project byNovember 1999. The Canadian pipeline monopoly filed its originalproject application with the National Energy Board in April, butmodified its plans this week.

The August Nymex contract probed lower yesterday but managed torebound before the close, bringing an end the price slide sincelast Thursday’s $2.425 high. Tuesday’s choppy trade left the spotmonth up 1.7 cents at $2.226 on the day. Despite the tight tradingrange and modest gain posted for the day, the session was anythingbut uneventful. Estimated volume confirmed the active market with53,327 contracts changing hands.

Bears roamed the gas price forest with impunity Friday, sendingall markets down at least a nickel or so and causing severalWestern points to crater. Continued steamy weather in the Southeastand Midcontinent was no match for relatively mild conditions in themajor market areas of the Northeast, Midwest and West Coast. Andthe screen’s drop of about 4 cents didn’t lend any support.

Encouraged by another skyrocketing screen, growing airconditioning load and a major supply outage in the Rockies, cashprices were on the rise Friday almost across the board by anywherefrom 2 to 18 cents. Most upticks were in the neighborhood of anickel, but all Rockies pipes were seeing double-digit increases.”I think a lot of people are starting to put their bull horns backon,” commented a Texas source.

Cash prices were dropping for the most part Wednesday as manyhad expected, and there’s no reason not to expect more softeningthrough the rest of the week, several sources said. They had plentyof evidence to back up their prediction: forecasts of moderatingheat in the South by the weekend, a falling futures screen and abearish AGA storage report exceeding 100 Bcf in injections.