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June gas crumbles as demand erosion limits supply-side woes

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June gas crumbles as demand erosion limits supply-side woes

Junenatural gas futures tumbled in the week's opening session Monday, May 2,lacking the fundamental support to hold pre-weekend gains driven by reports ofan explosion on Spectra EnergyCorp's 30-inch Texas Eastern pipeline in western Pennsylvania. Thecontract fell to a $2.033/MMBtu low and settled at $2.042/MMBtu, down 13.6cents on the session.

Demandfor natural gas is expected to crumble under the weight of mild weather as forecastspoint to moderating conditions after lingering cool weather kept heating demandsupported throughout much of April.

Thesix- to 10-day outlook from the National Oceanic and Atmospheric Administrationshows above-average temperatures crossing the upper tier of the country fromthe Northeast across portions of the Mid-Atlantic, Midwest, central U.S. andNorthwest. Average temperatures are expected in portions of the Mid-Atlantic,Southeast, south central and portions of the Southwest, while below-averagetemperatures are expected in a portion of Florida and across west Texas intothe Rockies and Southwest.

Furtherwarming over the eight- to 14-day period will expand above-average temperaturesacross the entire Eastern U.S., a large portion of the central U.S. and acrossthe majority of the West. Average temperatures are expected for portions of theGulf, an area of the south central U.S. and portions of the Southwest, whilebelow-average temperatures are expected from west Texas into New Mexico,Arizona and Utah.

Theweak demand should keep natural gas inventories building at a relativelyhealthy clip, adding to an already healthy supply as the shoulder seasoncontinues.

Naturalgas inventories currently sit at 2,557 Bcf, some 870 Bcf above theyear-ago level and 832 Bcf above the five-year average storage level of 1,725Bcf, after the U.S. Energy Information Administration reported a larger-than-anticipated73-Bcf injection into the natural gas supply in the week to April 22.

Concernsof a slowdown in production continue to undermine losses as the marketconsiders a record low U.S. drilling rig count and recent evidence of a declinein output.

Supplywoes were heightened by reports of the explosion Friday on the Texas Easternpipeline in Salem Township in Westmoreland County, Pa., but having digested thenews, natural gas futures reversed pre-weekend gains amid the weak fundamentalsupport provided by the weather and total working gas supply.

Spotgas markets, however, continued to respond to the pipeline incident as theexplosion and subsequent fire on Texas Eastern's pipeline that connects Texasand the Gulf Coast with high demand markets in the Northeast, forced thepipeline operator to issue a force majeure event.

TexasEastern declared a force majeure event on April 29 due to the unplanned outagedownstream of its Delmont Compressor Station in Delmont, Pa. It was unclear howlong the force majeure would remain in effect. The company said in a May 1critical notice that repair efforts to restore capacity are continuing, butcapacity remains at zero through gas day May 3.

Northeastday-ahead gas markets surged on the pipeline issues combined with cool weatheranticipated across the region through midweek. While Iroquois-Waddington tradedjust about 5 cents higher to an average around $2.25, Tetco-M3 deals jumpedabout 25 cents to an index around $1.65 and Transco Zone 6 NY gained about 45cents to an index around $1.90.

Elsewhere,although most markets were higher on weather-driven demand, gains wererelatively modest in comparison to the Northeast. Henry Hub traded nearunchanged at an index around $1.90, Waha was higher by more than 1 cent to an indexaround $1.80, Chicago advanced nearly 5 cents to average atop $1.95, whileacross the West, gains on either side of 5 cents were reported at SoCal Borderand PG&E Gate to indexes at around $1.85 and $2.00 respectively.

Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.