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The August natural gas wholesale contract fell in light, pre-holiday trading as energy traders maintained a neutral bias but noted that healthy production levels still remain a formidable force for the folks that are looking for natural gas prices to rise this summer. As everyone was leaving for the long Fourth of July weekend, the August wholesale contract had fallen 6.3 cents to $4.311 on the day. It seems Friday's retreat following Thursday's gains underscores the countervailing forces of a sizable storage deficit as compared to last year and the rising EIA forecasts of energy production. This record production pace seems to become more evident within the weekly storage stats if average U.S. temperatures are maintained for any length of time, which has been impeded for the last month and half with above average temperatures in the populous energy markets in the Northeast.
On the transactional front this morning, Constellation Energy, a leading competitive energy provider, announced on Friday that it closed its acquisition of MXenergy, a Connecticut-based supplier of natural gas and electricity with approximately 540,000 customers in North America. The $175 million transaction (subject to normal adjustments), announced May 12, broadens Constellation Energy's mass market presence to include the 15 states and two Canadian provinces where MXenergy supplies gas and electricity to residential and small commercial customers. The acquisition gives Constellation Energy approximately 900,000 residential customers, doubling its previous total. "The purchase of MXenergy is a significant milestone in our strategy to be a top leader in the burgeoning residential retail market," said Mark Huston, head of Constellation Energy's retail business. "This expanded residential and small business footprint propels us toward our goal of 1 million customers this year and positions the Constellation retail family to become the trusted energy partner for thousands of new consumers." With the close of the MXenergy transaction, Constellation Energy now ranks among the top 10 residential energy providers in the country. The transaction is the company's second mass markets acquisition in the past month; on May 27, Constellation Energy closed its purchase of StarTex Power, an award-winning Houston retail electric provider acclaimed for its service to approximately 170,000 customers. Constellation Energy has been steadily growing its residential base by offering customers a choice in electric, gas and energy services in Maryland, and electricity supply to customers in Washington, D.C., and parts of New Jersey, Illinois and Pennsylvania.
On the wholesale front, U.S. natural gas prices will begin to move higher in "late 2012" once the impact on supply is felt as more gas rigs continue to be diverted to oil plays, a Barclays Capital analyst said Friday. Through the end of this year and well into 2012 the domestic gas market will remain oversupplied, said analyst Michael Zenker and his team in a note. However, in the coming year Canadian production, reduced liquefied natural gas imports (LNG) and slower growth in U.S. supplies will allow demand to outpace supply. When the higher returns from oil attract enough of the "finite number of onshore drilling rigs away from gas-directed service," oil prices "matter for North American gas," Zenker said. "To match the return opportunity from unconventional oil drilling, producers would need to receive $12-15/MMBtu for their natural gas, nearly triple current price levels." Because of the disparity between oil and gas prices, many might question why exploration and production companies continue to develop natural gas, said the Barclays team. However, there aren't enough North American oil prospects to divert all of the activity away from gas.
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