CA Prices Fall Hard; Other Points Make Slight Gains

Continued strength prevailed for most of the cash market yesterday as prices at many points made small gains of 2-5 cents with one major exception: California. Cooler temperatures and forecasts for continued cool weather reduced power demand significantly and spot prices for gas at the southern border plummeted another 15 cents. San Juan prices lost another dime.

"Power prices in California took the big plunge," said one marketer "PX prices are way off. The 16-hour peak for today was $228 and for tomorrow it is $143. There was plenty of gas left over again today. When things go out long, that is really a good indication of what will happen tomorrow."

Despite substantially cooler temperatures in the southern half of the state and prospects for more normal temperatures statewide beginning today, California continued its series of power alerts on Wednesday. Unlike past alerts, however, this one was not prompted by plant breakdowns within the state but was due to a major power plant in the Pacific Northwest going down, resulting in a reduction of 1,300 MW in the imports coming into the state. Peak demand for Wednesday was down, dropping below 42,000 MW, and it was forecast to stay under 40,000 MW today and Friday.

Malin prices lost some ground, as did PG&E citygate quotes. "Both of those points went out on the low side. I wasn't looking to buy that much citygate, but for $5.85 I figured I could pack the pipe a bit," the marketer added.

"The PG&E citygate traded all over the map today," said another marketer. "It started high in the morning ($6.19) then dropped off later ($6.00 and lower). There's lots of gas coming in from the south. Anyone who has any capacity on lines from the south is just filling it right up. There's also a good amount coming out of storage. There's good demand; don't get me wrong. These prices are still high. It's all relative."

The other major market event was the AGA storage report, which came in with a 67 Bcf injection for last week. Although the report was within the range of market expectations --- the injection last week was 72 Bcf --- it still did not prevent a knee-jerk reaction on the Nymex. Futures prices spiked to a daily high and then came off sharply only to level out later. At 2,325 Bcf, working storage levels are 252 Bcf (10%) lower than the five-year average. Levels in the Eastern Consuming region are 7% behind the five-year average.

"Storage still is very supportive," said one observer. "The market may come off in the mornings, but people buy it right back up to put gas in the ground. There are people already out buying gas for cold weather, and it's still in the 90s down here in Texas. I think it's supposed to snow in Minneapolis later in the week. That cold air is coming down quick. Prices in Chicago were up only a few cents, but even when the Nymex dipped, cash never went with it."

Frost and freezing temperatures are expected over the upper Midwest, the Plains states and the Rocky Mountain region later this week and through the weekend.

Chicago, MichCon and Consumers prices gained between 3 and 5 cents on the day. Chicago basis for October was reported at plus 13-14 cents and has widened recently. "When the market thought that Alliance gas would be coming online Oct. 1, everyone sold October basis off. Then when the announcement was made that the full amount of gas would not flow until Nov. 1, October prices shot up," noted one trader. Also supporting Chicago right now is strong Michigan pricing that is being driven by a low storage levels, he added. The announcement that Union Gas is adding 2 Bcf of storage capacity also supported the "storage crunch," he said. MichCon basis is plus 25-27 cents, or 9-14 cents more than Chicago.

In Canada, the market was relatively quiet. "Line pack is good," said one Calgary-based gas marketer. "There are some plants that are out but they aren't really doing anything to the market. Storage levels are fine. Last year, we had 180 Bcf of gas in storage at this time in Alberta and right now we have 175 Bcf. Blame the big boys on the block [for the high prices]. They are saying 'Oh, I'm going to lead you guys astray.' We just capitulate. The element of freewill has departed.

"I think most of the gas futures move today was driven by 'oh yes' crude oil, which closed at $37.20 but got as low as $36.70 and as high as $37.80. There was huge volatility in crude. The guy who proposed the theory that gas and crude are no longer linked is the same guy who said that if you ask 10 women in a bar to go home with you one will say 'yes.' Besides being false, he also forgot to tell you several of the other nine probably would punch your lights out."

The weather situation in the Gulf of Mexico became less of a concern yesterday. The National Hurricane Center reported at 5 p.m. that Tropical Depression Twelve, which was 490 miles south-southeast of New Orleans, had a poorly defined center with little chance of gaining strength through the afternoon today.

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