Short

Natural Gas futures rallied again yesterday as traders reactedto colder-than-expected temperatures throughout much of the Midwestand Southeast. And similar to advances made last week, Monday’sprice action was fast and furious with the February contractleading the way and gapping 6 cents above Thursday’s high. However,once the $2.085 high for the day was reached about 10:30 EST, theprompt month was left to move sideways within a narrow trading bandfor the rest of the session, notching a 12.6-cent increase tofinish at $2.071.

KN Energy said it will take a fourth quarter charge as 1998earnings will fall short of market expectations due to record warmweather during November and most of December, plus a decline innatural gas processing marginsto about 1 cent, and lowertransportation revenues.

Chalk up another Gulf storm as more sound than fury with a onlya short-term impact on the cash market. Even as Tropical StormFrances caused heavy flooding along the Texas and Louisiana coastsFriday (preventing a number of Houston traders from getting to theoffice), prices were flat to down a nickel or so at Eastern points.Sources said much of the softness Friday, following on average10-cent increases Thursday, was based on the belief that much ofthe Gulf production losses would be moderating over the weekend.

The futures market continued its rally on Friday, fed on asteady diet of short-covering and local buying ahead of the holidayweekend. Early gains posted by the October contract led to a quickspike to the $1.86 level before light position squaring trimmedadvances before the closing bell. That left the prompt contract upa respectable 7.1 cents to settle at $1.783. October was not alone,November and December each more than matched October’s gains,increasing 7.6 cents and 7.3 cents, respectively.

Tuesdays and Wednesdays have been quiet lately at the New YorkMercantile Exchange with traders, brokers, and marketers waitingcalmly in anticipation of the weekly AGA storage report. In fact,since the end of April, daily changes to the spot month contract onthose days have been small, averaging slightly more than 3 centswith no change greater than 8 cents. However, this is natural gasand just when you think you have things figured out, it throws youfor a loop. This week, July plummeted on Tuesday to the tune of11.1 cents only to rebound 18.5 cents on Wednesday. That left thespot month at $2.174 at the close of the regular trading sessionWednesday afternoon.

Midcoast Energy Resources is buying two short pipeline systemsfrom Koch Gateway to serve new demand for marketing andtransportation in the Baton Rouge, LA, area. The systems will beacquired by Midcoast’s wholly owned subsidiaries, Mid Louisiana GasCo. (MLG) and Mid Louisiana Gas Transmission Co. (MLGT) for $2.6million cash. Midcoast will assume operations June 1, with closinganticipated during the third quarter, subject to approval by theFederal Energy Regulatory Commission and appropriate Louisianaagencies.

Following a tough first quarter in which earnings fell short of1Q97 levels by about $32 million, Sonat Inc. announced plans for amassive restructuring of its E&P properties, including the saleof 19% of its gas reserves, or 487 Bcf, and 24% of its production,or 200 MMcf/d.

A major independent producer group has painted a rosy outlookfor short- and long-term growth of domestic gas demand and supply.U.S. gas demand is expected to rise by one percent to 22.23 Tcf in1998, eclipsing the previous consumption peak achieved in 1972, andlikely will hit 23 Tcf in 2000, according to forecasts issued atthe Independent Petroleum Association of America’s (IPAA) Oil andGas Investment Symposium in New York Tuesday.

Cash numbers were softening as expected Thursday, following theprompt of the futures screen’s late downturn Wednesday. But itlooks like it’s already time to reverse field again and head upwardtoday based on the screen’s strong gain Thursday, sources said.