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US Gas Futures Surge On Icy Forecasts

November 22nd, 2010

HOUSTON (Dow Jones) – Natural gas futures rose Friday on an icy weather outlook, propelling the benchmark contract to its first weekly gain in November.

Natural gas for December delivery settled up 15.7 cents, or 3.92%, to $4.164 a million British thermal units on the New York Mercantile Exchange.

Futures have struggled to stay above $4/MMBtu this fall but colder forecasts that should ignite heating demand and a lower-than-expected injection into storage reported earlier this week signal that the market fundamentals are beginning to shift in favor of higher prices.

“We finally got some cold weather and the prices should start to firm up,” said Tom Saal, senior vice president of energy trading for INTL Hencorp Futures in Miami. “The market does react to demand.”

Meteorologists with private forecaster MDA EarthSat Weather predict that temperatures will fall well below normal over much of the country during the next 10 days as a frigid front moves from the Pacific Northwest and settles over the Midwest, Southeast and East Coast.

Earlier in the week the Energy Information Administration reported that gas in U.S. storage rose by 3 billion cubic feet in the week ended Nov. 12. That injection raised supplies to a record level of 3.843 trillion cubic feet. But the fact that the rise was less than the 8 bcf anticipated by traders and analysts in a Dow Jones survey and many times smaller than the preceding weekly injections indicates that producers are delivering much of their output to customers after weeks of pumping their glut into storage.

While the winter turnaround should buoy prices above $4/MMBtu, the change is not likely to push the December contract above $4.249/MMBtu and the January contract higher than $4.40/MMBtu, Pax Saunders, an analyst with Houston-based Gelber & Associates, wrote in a research note.

“We’re still surfing on a tidal wave of gas and production is far more robust at this time than it was last year, even if some rigs are laid down,” Saunders said.

Oil-field services company Baker Hughes reported that the number of rigs drilling for gas in the U.S. fell by 19 this week to 936. Though the gas rig count has generally declined in recent weeks, there were only 726 rigs drilling a year earlier.

“Production indicators still point toward growth, and we think the market is likely to remain under pressure given that underlying fundamentals have not improved,” Barclays Capital analysts wrote in a note to clients.
FUTURES                     SETTLEMENT                     NET CHANGE
Nymex Dec                        $4.164                                   +15.7c
Nymex Jan                        $4.324                                   +14.1c
Nymex Feb                        $4.320                                   +13.1c

CASH HUB                  RANGE                   PREVIOUS DAY
Henry Hub                $3.75-$3.84               $3.65-$3.94
Transco 65               $3.70-$3.85               $3.69-$3.96
Tex East M3             $4.00-$4.15               $4.14-$4.32
Transco Z6               $4.12-$4.25                $4.20-$4.45
SoCal                        $3.80-$3.8475           $3.81-$3.91
El Paso Perm            $3.64-$3.725             $3.65-$3.83
El Paso SJ                 $3.63-$3.72                $3.73-$3.79
Waha                          $3.69-$3.75                $3.70-$3.87
Katy                            $3.75-$3.85                $3.83-$3.93

_____

By Ryan Dezember

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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