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US Gas Futures End Lower On Storm, Mild Temperature Outlook

August 23rd, 2010

(Dow Jones) – Natural-gas futures ended lower Friday amid a lack of immediate storm threats in the Atlantic Basin and expectations for milder weather next week.

Natural gas for September delivery on the New York Mercantile Exchange settled down 5.4 cents, or 1.29%, at $4.117 a million British thermal units, the lowest since May 25. The front-month contract sank to a low of $4.109/MMBtu earlier in the session. Prices have fallen about 5% this week as traders eyed a break in the hot weather. In addition, a quiet week for storms in the Atlantic and ample gas supplies weighed on prices.

“With no storms immediately threatening the Gulf [of Mexico], the expected roll-off in cooling demand as a seasonal progression remains the top theme in the market,” analysts with the Gelber & Associates wrote in a note to clients on Friday.

Revised weather forecasts predicting more moderate temperatures across the Midwest next week put some pressure on prices. Meteorologists with the private forecasting firm Commodity Weather Group see some above-normal temperatures in the Midwest, the Southwest and the Great Plains from Aug. 25 to Aug. 29. Near-normal temperatures are expected across the Southeast and the Northeast.

“A cold front sweeping through the central to eastern thirds of the nation the middle of next week looks to be stronger than our original forecast,” the forecasters wrote in a note to clients, adding that the weather outlook is trending cooler in the Midwest.

The market is also anticipating cooler weather as autumn approaches. Mild weather can stifle demand for natural gas-fired power used to cool homes and businesses. Even the above-normal temperatures in the forecast aren’t expected to spur much additional demand for gas, analysts said.

Meanwhile, government forecasters are monitoring a pair of tropical disturbances in the Atlantic Basin. A cluster of thunderstorms over the Yucatan Peninsula has a low chance for tropical cyclone formation, while another storm system in the distant Atlantic, about 300 miles southwest of the Cape Verde Islands, has a 40% chance of tropical cyclone formation, according the National Weather Service. Neither was seen Friday as a pressing threat to supplies from the U.S. Gulf, an energy rich region representing about 11% of domestic gas output.

“It’s tough to buy this market. You are essentially praying for a hurricane,” said Stephen Schork, president of the energy advisory firm the Schork Group. “That’s no way to invest.”

However, the potential for an unexpected storm development over the weekend helped support prices Friday.

“No one wants to return on Monday to a named storm marauding on a course to intercept oil installations,” analysts with the energy advisory firm Cameron Hanover wrote in a note to clients.

Nevertheless, natural-gas inventories, which can be called upon in case of a supply disruption, remain at high levels. Natural gas in U.S. storage for the week ended Aug. 13 stood at 3.012 trillion cubic feet, 7% above the five-year average.

FUTURES                   SETTLEMENT                   NET CHANGE
Nymex Sep                      $4.117                                  -5.4c
Nymex Oct                      $4.137                                  -6.8c
Nymex Nov                     $4.342                                   -6.0c

CASH HUB                   RANGE                   PREVIOUS DAY
Henry Hub                   $4.14-$4.21                $4.21-$4.32
Transco 65                   $4.14-$4.21                $4.20-$4.32
Tex East M3                $4.38-$4.45                $4.56-$4.62
Transco Z6                   $4.39-$4.45               $4.57-$4.63
SoCal                            $3.53-$3.60              $3.57-$3.64
El Paso Perm              $3.54-$3.64               $3.65-$3.80
El Paso SJ                   $3.40-$3.48               $3.45-$3.52
Waha                           $3.63-$3.75               $3.75-$3.94
Katy                             $4.08-$4.16               $4.19-$4.25

_____

By Jason Womack

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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