Despite a high weekly storage injection of 36 Bcf last weekcompared to a five year average build of only 13 Bcf, according tothe American Gas Association (AGA)’s weekly report yesterday, thefutures market soared much higher and yanked cash prices up withit. Most daily cash price gains ranged from 20 cents to 35 cents.

Cash and futures prices found convincing support in thewidespread cold temperatures sweeping the western two-thirds of thenation. A new upper-level storm will continue pounding rain andsnow over a widespread area in the West today. Winter weatherwarnings, watches and advisories were widespread in the Rockies andPacific Northwest on Wednesday. A cold rain mixed with snow alsowas starting to chill the Midwest and will continue producing someheating demand across the Midwest and Great Lakes regions today.

The Pacific Northwest saw the most dramatic changes in prices onWednesday with Sumas, Stanfield and Kingsgate jumping 40-50 centsor more. The West is facing not only cold weather, snow, sleet andrain, but also a host of pipeline operational issues, mostimportantly a potential OFO on Northwest. In addition, there was anunauthorized overpull penalty situation on El Paso and variousmaintenance programs on Transwestern and Kern River (seeTransportation Notes).

Northwest still was considering an OFO yesterday becausenomination requests were expected to continue to exceed northernflow through the Kemmerer compressor station. The constraint therehas raised demand for gas at Sumas, Stanfield and other points inthe Pacific Northwest. Tight operations also continued on KernRiver with continued maintenance at the Muddy Creek compressorstation.

Meanwhile, the cold temperatures and snow seemed to shock a fewfolks in the Southwest, in Texas and in the Midcontinent wherebuyers were flushed out of their hiding places. Prices soared 20-40cents at many locations.

“There’s a lot of demand in the east of California markets. Itis uncharacteristically cold in Arizona today,” said an end-user.”Our high is 15-20 degrees lower than normal. I assume the sametype of thing is going on in California but there’s some folks thathave storage out there, and the price is right to bring gas backfrom the border.”

There was strong buying in West Texas Wednesday by in-statepeakers and by players who were moving gas west rather than buyingoutright at the California border. West Texas prices gained about30 cents while prices at the border shot up by about 35 cents ormore in some instances.

“Usually, you just see this at Keystone, but [Wednesday] you sawbuyers picking up big volumes at Waha as well,” said one observer.”Waha, while typically a more expensive option, can be a bettersource for gas flowing west because it is not constrained at Pecos,like Keystone supply.”

There was an abundance of “first-of-month shorts at the Calborder,” he added. “Buyers came into the month thinking that priceswould continue to tumble lower and their patience would berewarded. Now the weather is cold and they are forced to pay up.”

What’s making matters even worse is El Paso’s extendedunauthorized overpull penalty situation in the San Juan Basinbecause of people shorting the pipe, hoping for lower prices laterin the month. “We had real problems trying to get any gas pastcycle two into El Paso’s system,” said the end-user. “Every pointin the east seems to be full so we actually flowed some stuff fromCalifornia back. That overpull penalty situation is pretty messy.Prices there [in the San Juan Basin] got up into the $4.80s.”

Chicago and Midcontinent prices gained significant strengthyesterday and made gains relative to the Henry Hub. “Chicago wasabout 10 to 15 cents over the hub which was more than a couplecents stronger than it has been,” said one source. “It’s cooler andthere probably still is storage injection demand up there with thescreen running like it is. Being able to buy gas 10 cents undermeans there’s still some profit to be had if you can recycle yourstorage. We don’t see any real severe weather up there yet. But itshould be there later in the week.” Chicago added about 20 cents,while many Midcontinent points added 30 cents or more.

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