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US Gas Futures Fall As Strong Supply Trumps Hurricane Concern

August 19th, 2010

NEW YORK (Dow Jones) – Natural gas prices slipped Wednesday as strong supplies trumped concerns over potential production outages as the heart of hurricane season arrives.

Natural gas for September delivery on the New York Mercantile Exchange settled 2.8 cents, or 0.66%, lower, at $4.239 a million British thermal units. The contract swung between negative and positive territory Wednesday, climbing as high as $4.308/MMBtu and falling as low as $4.196/MMBtu.

Prices have been trading at two-and-a-half month lows this week as forecasters see little potential for hurricane activity in the near term. Yet the threat of hurricane activity is tempering a further selloff in gas futures, said Pax Saunders, an analyst with Houston-based Gelber & Associates.

“That is one thing we are waiting on,” he said, expecting prices to continue grinding lower even as hurricane season looms.

Late summer and early fall traditionally are the most active times for hurricanes. Storm activity can shut gas supplies in the U.S. Gulf of Mexico, an energy-rich region representing about 11% of domestic gas output.

The National Hurricane Center is tracking showers and thunderstorms in the west central Caribbean that show little chance of forming into a cyclone. Its latest forecast puts the potential at 10% over the next 48 hours.

Looking ahead, storm activity off the west coast of Africa could develop further as it crosses the Atlantic Ocean over the next week. But if it makes landfall, the storm would likely be well north of the U.S. gulf, said Richard Grow, a meteorologist with private-forecasting firm MDA EarthSat Weather.

“That seems like the least likely scenario right now,” he said.

As concerns over hurricane season provide price support, strong supplies, wobbly industrial demand and the dwindling days of warm summer weather all continue to pressure futures lower.

Analysts and traders expect government data scheduled for release Thursday to show a smaller-than-average build in gas inventories as hot weather last week spurred additional demand for natural-gas-fired power plants to meet air conditioning demand.

The U.S. Energy Information Administration is expected to report that 31 billion cubic feet of gas were added to storage during the week ended Aug. 13, according to the average prediction of 20 analysts and traders in a Dow Jones Newswires survey.

The EIA is scheduled to release its storage data Thursday at 10:30 a.m. EDT.

Yet Saunders said he doesn’t expect an injection in-line with estimates to have much of an effect on ongoing pricing. Gas production continues to remain robust as producers put more drilling rigs into service to exploit prolific onshore natural gas fields known as shales. At the same time, strong gas demand by power plants to keep up with summer cooling needs will begin to taper off as the hot summer months come to an end.

FUTURES                   SETTLEMENT                   NET CHANGE
Nymex Sep                       $4.239                                 -2.8c
Nymex Oct                       $4.266                                 -1.7c
Nymex Nov                       $4.473                                 0.0c

CASH HUB                   RANGE                   PREVIOUS DAY
Henry Hub                    $4.30-$4.37               $4.27-$4.36
Transco 65                   $4.28-$4.37               $4.27-$4.31
Tex East M3                 $4.62-$4.71               $4.57-$4.65
Transco Z6                   $4.63-$4.73              $4.63-$4.71
SoCal                            $3.63-$3.74               $3.60-$3.73
El Paso Perm               $3.70-$3.77              $3.74-$3.81
El Paso SJ                    $3.51-$3.58               $3.45-$3.68
Waha                            $3.76-$3.95               $3.85-$3.95
Katy                             $4.26-$4.32                $4.21-$4.28

_____

By Mark Peters

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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