Weakening

While much of the gas industry is busy preparing for a period of low prices and declining demand due to the weakening economy, Duke Energy is showing great confidence in future gas market growth. The company announced plans late Thursday to buy Westcoast Energy in a cash and stock transaction valued at US$8.5 billion, including $4 billion in debt assumption. The move greatly expands Duke’s North American natural gas pipeline holdings and positions it for a strong role in future gas infrastructure expansions.

The cash market largely ignored weakening weather fundamentals Friday and sent prices higher at most points. Only plunges in the Rockies and at Transco Zone 6-New York City ran contrary to the overall firmness.

Rapidly declining gas and oil prices, a weakening economy and higher operating costs pressured ExxonMobil Corp. earnings down 23% or $970 million, excluding merger effects, to $3.3 billion ($0.48 per share). Earnings per share declined by 20%. Domestic natural gas sales were off more than 16% from the same period last year.

The moderately softening status quo remained in effect for the cash market Thursday. Declines of about a dime or less prevailed at most points, although double-digit moves were reported for the Rockies/Pacific Northwest region. The smallest drops of less than a nickel were concentrated at cool Northeast citygates.

Despite expectations for further weakening in natural gasfutures yesterday, the market surprised many observers by movingsharply higher after the American Gas Association reported a secondconsecutive weekly 78 Bcf increase in gas storage levels.

The cash market shrugged off Tuesday’s modest weakening toresume an upward climb Wednesday. Yesterday’s gains weren’t aslarge as those on Monday (mostly 5-10 cents compared with 10-20cents, respectively). Also unlike Monday’s trading, there was nogeographical divergence with Western increases being significantlyless than the East’s; the Wednesday upticks were mixed relativelyequally in both areas.

Expect weakening prices and slow gas demand growth this year,the Energy Information Administration said last week in a sharpdeparture from earlier forecasts. Its July Short-Term EnergyOutlook is based on first-quarter data that show a “surprising”5.1% decline in industrial gas use compared to the same period in1997, despite a 3.4% increase in industrial output by gas-intensivemanufacturers.

Late-April prices maintained their weakening ways Friday,although most of the declines were not as steep as on “BlackThursday,” as one producer called it. The largest drops tended tobe concentrated at Western points, especially with Malin andPG&E citygates falling at double-digit rates again. Theirsoftness was exacerbated by PG&E’s Stage 2 OFO that becameeffective Saturday. The OFO, prompted by high system linepack,carried penalties of $5/dth for any deliveries exceeding 110% of acustomer’s nominated volumes.