Spot price records could be tested again this week in SouthernCalifornia, where the market yesterday nearly mimicked what tookplace in early December when prices reached a new record at$58.76/MMBtu. SoCal started the day around $20 and then soaredabove $40 before coming back down to the low $30s. Strong heatingand power generation demand and stringent balancing requirements onSouthern California Gas’ system due to low storage levels, promptedthe market move.

“If that 90% daily balancing hasn’t happened on SoCalGas yet,they are going to be in a world of hurt because it’s alreadytrading at $40/MMBtu. I bet we’re going to see $60 again like wesaw in December,” one marketer predicted. “Without strong demandout there, we wouldn’t even be discussing this. Even if they losethe demand, prices still are trading for rest of the month outthere at $26. Who’s going to inject gas at those prices? Not me.Demand obviously is going to diminish over the next 45 days outthere, but for the time being they are kind of stuck.”

SoCal announced that starting Thursday non-core customers haveto deliver 90% of their daily burn rate or face stiff penalties of150% of the high price in the NGI index range. SoCal’s storagelevels are in a precarious position. The utility has limitedflexibility in balancing its pipe.

“It was unbelievable,” said one producer. “It’s just out ofcontrol.”

PG&E Citygate and points farther north didn’t react the sameway because of long-standing capacity constraints. “You cannot getanymore gas through to SoCal at Topock so there is gas trapped inPG&E’s system,” noted one source. “To add salt to the wound,PG&E is also doing maintenance at Malin. The constraint impactthere is probably about 70 MMcf/d. Citygate got to $14 but crashedand burned at the end to $10.50. Malin got as high as $12.50 andtraded down to $10.80. Kingsgate traded at in the high $5.90spretty much flat to yesterday. AECO was flat and then came up latewith Nymex.”

Everything else was weak yesterday particularly compared to nextmonth’s value. “We traded most of the morning at a $5.75 average onthe Nymex so we should have been trading $5.77 at Waha or $5.87 atKeystone, yet we traded $5.45-55 at Waha and $5.50-60 at Permian.That’s weak basis. We’ve been able to go in and out of storage inWest Texas lately but the pipe called this morning and said ‘lookyou guys can’t put any more gas in the ground; we’re tight as atick.’ We’ve been injecting it as fast as we can and hedging it offagainst out-months. If we had anymore gas in storage than we have,prices would go to nothing right now.”

However, the Nymex uptick could be the beginning of aturn-around if weather cooperates, according to some sources. “Webounced off of that triple bottom at $5.65-75 and futures are upright now to $6.05. We may be off and running here again soon. Youwon’t know until you get there.”

Some weather forecasts are showing below normal temperaturesover the next two weeks for the Great Lakes and Northeast andnormal for most of the rest of the country, said one marketer. “Ifthat comes to pass, we’ll have a return to good loads.” TheNational Weather Service’s six- to 10-day, however, shows a growingarea of above normal temperatures in the Midcontinent, theSouthwest and most of Southern California. Below normaltemperatures are still forecast for the Northeast and a corner ofthe Pacific Northwest. Temperatures across the rest of the countryare expected to be normal.

Nymex triggered a late rise in Alberta prices yesterday. But theprovince continues to be in its own gas supply and electricityshortage. Gas is in short supply at the wellhead and because ofAlliance Pipeline. “Even shippers on Alliance don’t have enoughproduction to fill it,” said one trader. “They had to go to themarket to buy it. It was a real dog’s breakfast. We’re still in ashortfall situation. It will take some time before new holes getpoked up here and enough new supply comes on. We won’t be out ofthe woods for a year at least.”

Warm weather in the Gulf and lower Midcontinent and Southeastkept prices soft there. Prices in the Northeast lost ground butsome points stage late rallies. Transco Z6 NY started down slightlyat $6.05 and slipped lower throughout the morning only to move backup late amid a short-covering rally, said one marketer. Anotherpotential factor for the price rise was that at about 30 cents thismorning the variable cost of transportation on Transco was onlynarrowly being covered by the price differential between Station 65and Zone 6.

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