Storm Fears Help Send Futures, Most Cash Points Higher

Slightly cooler temperatures in many major eastern market regions dropped cooling demand a few notches yesterday, but all eyes quickly turned to the northwestern Caribbean Sea where Tropical Depression 11 appeared poised for a weekend visit to the Gulf of Mexico.

The depression triggered a huge 14-cent futures spike to a record high of $5.195/MMBtu. Spot prices, however, only inched up a couple pennies at most locations. A few points, particularly in the Northeast, even lost some ground mainly in reaction to cooler weather. The Northeast and Midwest in particular are scheduled for a significant cool down with weekend lows in the 40s and low 50s. A few spots in the upper Midwest are expected to reach the mid-30s.

The California power market was still running hot yesterday with the ISO again declaring a Stage Two Electrical Power Alert because about 3,964 MW of power was off-line due to mechanical failure or planned maintenance and because of a fire that apparently was caused by a sagging tree limb near a power line that makes up the California-Oregon Intertie. With power reserves below 5%, the ISO said it may have to implement interruptible load curtailments. The restart of the 1,100 MW Diablo Canyon 2 nuclear power plant on PG&E's utility system in central California along the coast could provide some relief. Diablo 2 was shutdown Sept. 5 to repair a leak in a steam condenser unit, but was returned to service yesterday afternoon. Diablo Canyon Unit 1, also 1,100 MW, is running full throttle.

Meanwhile, Tropical Depression 11 could disrupt this market severely if it makes a move across the Yucatan Peninsula and strengthens over the warm open waters of the Gulf. The depression formed in the northwestern Caribbean east of the Yucatan, but may move into the Gulf as early as today, according to the National Hurricane Center. Forecasters said the depression is expected to pass over the peninsula, which could slow its development. It has maximum sustained winds of near 30 mph, but is expected to strengthen quickly if it reaches the Gulf.

With working gas levels in storage currently about 292 Bcf lower than the six-year average, even a few days without full Gulf production could severely hinder the industry's ability to bring storage to a safe level prior to the winter heating season. Storage already is likely to enter the winter heating season with the lowest inventory in a decade, Energy and Environmental Analysis, Inc., an Arlington, VA-based consulting firm, noted in a report yesterday.

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