Regions

Significantly below-normal temperatures in a number of regions of the United States allowed a vast majority of natural gas cash market points on Wednesday to add to the gains established on Monday and Tuesday, while a few eastern and Gulf Coast points recorded declines of a few pennies to almost a quarter.

Reports of the Lehman Brothers implosion, the purchase of Merrill Lynch, the freefall of the Dow Index and petroleum contract values and concerns over Hurricane Ike damage and shut-ins all added up wide swings for natural gas futures on Monday. After pressing support at $7 in early trade, the prompt-month shot violently higher to a high of $7.840 just after noon EDT before evening out in the end at $7.374, up less than a penny from Friday’s close.

Piggybacking on the $2.69/bbl July crude futures gain, stifling heat in a number of key regions and widespread speculation on storm rumblings in the tropics, July natural gas futures on Monday once again punched above the psychological $13 barrier. After trading between $13.029 and $13.266, the prompt-month contract finished the day’s regular session at $13.203, up 20.9 cents from Friday’s finish.

Sparked by Friday’s 17.4-cent gain in July natural gas futures, the oppressive heat wave in a number of U.S. regions and fierce storms in the Midwest and the Plains that are headed for the Northeast and Mid-Atlantic, most cash points moved higher on Monday with some Rockies locations — which lost more than a dollar on Friday — gaining the same amount back.

With temperatures remaining frigid Tuesday in a number of regions of the country, including the Mid-Atlantic and Northeast, March natural gas futures for a second consecutive day reached a high of $8.620, which much like Monday’s session ended up triggering a round of selling. The prompt-month contract on Tuesday closed at $8.436, down 9.5 cents on the day.

El Paso Corp.’s exploration and production subsidiary agreed to sell some noncore properties in its onshore and Texas Gulf Coast regions in three agreements worth an estimated $517 million. El Paso did not disclose the buyers. At the end of 2007 the company had an estimated 191 Bcfe of proved reserves associated with the properties to be sold, with roughly half coming from each region. In December the average output for the Texas Gulf Coast properties was 39 MMcfe/d; the onshore properties produced 17 MMcfe/d. The transactions are expected to close by the end of March. Proceeds would be used to repay debt incurred with the $879.1 million acquisition of Peoples Energy Production Co. in September (see NGI, Oct. 1, 2007). El Paso also said it is negotiating with prospective bidders to sell some other noncore Gulf of Mexico properties. El Paso did not disclose which onshore properties were to be sold. Its onshore division focuses on exploring for unconventional natural gas in the Rocky Mountains, New Albany Shale, Arkoma/Midcontinent, Ark-La-Tex and the Raton and Black Warrior basins. The Peoples acquisition built El Paso’s reserves in the Ark-La-Tex region and along the Texas Gulf Coast. Jefferies Randall & Dewey acted as financial adviser.

With winter storms pounding a number of U.S. regions on Wednesday, natural gas futures in quiet trading recorded their first gain in seven sessions. The January contract traded in a $7.100 to $7.265 range before settling at $7.185, up three pennies from Tuesday’s close.

Most regions of the country have seen proposals for a huge amount of coal-fired power generation. However, in just the past year more than 30 GW of proposed coal-fired capacity has been canceled or postponed. While one might expect a robust increase in demand for gas from power generation, the truth is the power sector’s gas burn already was in for substantial growth, analysts say.

While the East region withdrew 11 Bcf from natural gas storage for the week ended Nov. 16, the Producing and West regions combined to make the country’s net movement for the week a 4 Bcf injection, according to the Energy Information Administration’s (EIA) Wednesday report. Despite the bearish number, it appeared that a major media storage reporting error, combined with a new forecast for near-term cold in the Midwest, pushed December natural gas futures to a high of $7.620 before the contract closed at $7.550, up 7.3 cents from Tuesday’s close.