Cash prices were mixed on Friday with many points off 5-15 cents while those at some other locations were up 2-8 cents based on continuing uncertainty regarding Hurricane Ivan’s projected path and some buying interest at what might be deemed attractive price levels. On Friday, prices at many locations were still down 50-60 cents from September bidweek levels.

The futures market traded mostly sideways Friday until 2 p.m. EDT when the National Hurricane Center predicted that Ivan likely would become the third hurricane in a month to menace the Florida peninsula. October futures ended on a weak note, falling 8.8 cents to $4.570. However, the NHC’s forecast at 5 p.m. painted a different picture yet again, showing the eye of the category four hurricane missing the peninsula and making landfall on the panhandle near Tallahassee.

Given its proximity to the Gulf production area, gas industry observers are keeping a very close watch on this one. Some producers already began removing nonessential personnel from eastern Gulf platforms on Friday, but there were no reports of production shut ins. Shell said it would evacuate about 125 non-essential personnel Friday but no production was expected to be shut in. BP said it was evacuating 100 nonessential workers from the eastern Gulf. BP has 2,500 workers in the Gulf.

ExxonMobil spokesman Bob Davis said Friday that the company was in Phase I of its preparations for the storm and had not evacuated any personnel yet, nor shut in any production. He noted that the company is typically one of the last to evacuate because it has its own helicopter fleet and does not have to contract early for evacuations. ExxonMobil has 550 people in the Gulf on 100 structures. It produces 1.2 Bcf/d of gas in the Gulf.

ChevronTexaco expected to begin evacuating non essential personnel over the weekend but it was too early to determine on Friday exactly how many workers would be removed or if the evacuations would include shutting in any gas production. A spokesman for Kerr McGee said the company was closely monitoring the storm but had not taken any action yet.

The uncertainty regarding Ivan’s path kept the industry and the gas market on edge over the entire latter half of last week. Without any significant impact on production from Ivan, many observers see little reason for the market downtrend, which started in June, to stop now. Near-month futures during the week reached their lowest levels since November 2003 and ended the day on Friday down another 9 cents.

“The market’s direction will depend on what course Ivan takes,” said a Midwest marketer. “If Ivan heads up the Florida peninsula, prices undoubtedly will keep coming down. If it makes its way into the eastern Gulf, we’ll probably see prices head back up.”

He said prices in Chicago for October delivery probably will bottom out around $4.50, or perhaps move even a little lower. “[October] is sitting around $4.70 right now. We probably have a little bit more to come off. I think the winter months have a lot to come off. That probably won’t happen right away though. People aren’t going to give up on winter pricing just yet. But it has to come down. We either have to see October and November head up or the whole winter needs to come down.”

A look at prices last winter, however, gives some back-up to the current spread. NGI’s bidweek price for the Henry Hub showed September 2003 at $4.93, October and November at $4.45, December at $4.86 and January 2004 at $6.15. For the same sequence, Chicago registered $5.03, $4.64, $4.67, $4.93 and $6.31. Prices in February fell back again, HH to $5.76 and Chicago to $5.93, as the reality of a warm winter sank in.

Monthly storage costs typically run a little more than a dime, putting the normal spread between October and February futures at about 50 cents. Currently, however, there is a $2.20 spread between October futures and February futures. “It’s just unprecedented,” a Gulf producer said. “I can’t see keeping these type of spreads without major production problems from a hurricane. We are going to hit 3.2-3.3 Tcf in storage and there’s pretty mild weather right now. There’s very little in the way of this market continuing much lower.”

Kyle Cooper of Citigroup predicts that storage will “easily surpass 3,200 Bcf” this injection season. The Energy Information Administration (EIA) last week reported an 80 Bcf injection for the week ending Sept. 3. It was in line with most market expectations and showed that storage is on pace to reach historical full levels by the start of the winter heating season.

“In late October, weekly injections must only average 53 Bcf to reach 3,200 Bcf,” said Cooper. He said injections over the next couple weeks are expected to equal or exceed 80 Bcf/week. Weekly injections “now only have to equal 86% of both the three and five-year averages to reach 3,200 Bcf by early November.”

As a result, storage remains the most significant bearish factor weighing down prices. What would possibly provide some price support would be cold weather in October and November and some colder-than-normal winter weather forecasts.

Fuel switching, however, also is starting to create some demand, according to Northeast sources. According to Thomas Driscoll of Lehman Brothers, residual fuel prices “could set a floor for natural gas prices.”

Over the past two months, New York Harbor prices for low-sulfur residual fuel has averaged about $5/MMBtu. “For natural gas to recapture demand from resid users, gas prices may need to fall to the level of resid — or even below,” Driscoll noted on Friday. “For (New York) delivered gas prices to be at parity with resid, Gulf Coast gas prices would also need to fall to about $4.60/MMBtu. At that price we suspect customer preference for burning gas versus resid fuel would overcome the fears that the low gas prices would be short-lived.” Henry Hub gas prices on Friday traded in the $4.50s and other Louisiana points were in the $4.40s.

In the Northeast on Friday, the cash market was very soft. New England points in particular posted sharper than average declines of up to 20 cents (Dracut, Tennessee Zone 6) while New York was down more than a nickel. “We saw a lot of industrial and commercial load pull back for the weekend and consequently we’ve seen regional basis come in,” said a New England marketer. “Most points were trading between $5.05 and $5.15 for Friday but for the weekend, prices will be somewhere between $4.85 and $5 in the Northeast. Cash in the Gulf was off slightly, but regional basis came in quite a bit.”

Western points were mixed with SoCal Border down more than a dime and the Rockies flat to up or down a few cents. Midcontinent locations also were mixed with prices up or down 5-10 cents on average.

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