The US Energy Information Administration reported natural gas in underground storage topped 3 tcf with a 66 bcf injection in the week ended July 31. That was up 580 bcf from a year ago and 496 bcf above the 5-year level, with still time to reach maximum capacity well ahead of the Nov. 1 start of the winter heating season. Bearish gas market fundamentals and record-high storage are "why it is so difficult to explain the quick and significant price move Aug. 3 that occurred in just 10 min," said analysts at Energy Solutions Inc. , Verona, Wis. On that date, at 9-9:10 a.m. EST, the September gas contract jumped to $4.162/MMbtu from $3.708/MMbtu on the NewYork Mercantile Exchange, eventually closing at $4.03/MMbtu, up 37.80 for the day. "The rally has been chalked up to being a major play by a larger player who either decided to get into the market quickly or get out quickly. There is also 'speculation' that this price move may have been caused by a player who decided to exit the market rather than risk being subjected to potentially new contract limitation restrictions that are being discussed by the government," said Energy Solutions analysts.

Either way, they said, the price jump was "a subtle reminder that no matter how bearish things may be, the market can sometimes move in the opposite direction for no reason at all."

Analysts at Pritchard Capital Partners LLC, New Orleans, noted at the time, "Natural gas has bounced off the $3.20/MMbtu level three times now, but always failed at $4.30/MMbtu.The contract is inching towards the $4.30/MMbtu level but will need to decisively break the $4.30/MMbtu level to sustain the current rally."

Gulf of Mexico platform fire

The gas contract declined 30 in the next session but rebounded 4.10 on Aug. 5 after Enterprise Products Partners LP shut in its 42- in. Gulf of Mexico pipeline due to an explosion and fire at a compressor plant on Platform 264 B of the High Island Offshore System. The connecting pipeline was not damaged, but there was damage to Platform B, which houses compressors used to boost throughput on the line. Platform A, which houses operational personnel, was not affected.

The system has the capacity to transport 1.8 bcfd of gas from the gulf to pipelines off the Louisiana coast such as ANR Pipeline Co. ,Tennessee GasTransmission Corp., and the UT Offshore System. But initial reports said it was transporting only 200-300 MMcfd recently due to last year's hurricane damage.

Meanwhile, the Independence Hub platform in the gulf is expected to operate at 700-800 MMcfd vs. recent trends of 900 MMcfd through the rest of the third quarter due to maintenance on separators. Each of the seven separators will require 1-2 weeks work, or 50-55 days of aggregate repair downtime.

However, traders shrugged off those disruptions, and the front- month gas contract plummeted 29.90 when the EIA reported the latest build in gas storage Aug. 6. It dropped another 6.90 to $3.67/MMbtu on Aug. 7, up a minimal 0.43% for the week.

Upbeat US economic data on Aug. 7 helped strengthen the US dollar and undermined crude prices, "but provided no support for natural gas, which is surprising since unlike oil the natural gas price is primarily driven by the US economy and not the global one, " said Pritchard Partners. "The worst of the economic downturn is behind us, but there is an abundance of natural gas as evidenced by most [exploration and production companies] delivering higher production than anticipated."

In recent telephone briefings with analysts, they said, "Price- driven shut-ins were mentioned as likely by XTO Energy Inc., Chesapeake Energy Corp., and EOG Resources Inc." However, they reported, "Each company said it would exceed previous production guidance. Signs that the consumer is strengthening will be the precursor to higher industrial production numbers, which will drive higher industrial demand for natural gas, the weakest element of demand year-to-date."

Chesapeake earlier said it would shut in 400 MMcfd because of low prices and large storage. However, the company apparently will now resume production.

Meanwhile, weather forecasters look for El Nino conditions to continue to develop and to last through the Northern Hemisphere into winter 2009-10. "It is well accepted that El Nino reduces hurricane activity in the Atlantic Basin, so the possibility of a hurricane cutting off [gulf] natural gas production seems a less likely event as hurricane season approaches," Pritchard Capital analysts said.

Copyright PennWell Corporation Aug 17, 2009

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