Continued strength prevailed for most of the cash marketyesterday as prices at many points made small gains of 2-5 centswith one major exception: California. Cooler temperatures andforecasts for continued cool weather reduced power demandsignificantly and spot prices for gas at the southern borderplummeted another 15 cents. San Juan prices lost another dime.

“Power prices in California took the big plunge,” said onemarketer “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 overagain today. When things go out long, that is really a goodindication of what will happen tomorrow.”

Despite substantially cooler temperatures in the southern halfof the state and prospects for more normal temperatures statewidebeginning today, California continued its series of power alerts onWednesday. Unlike past alerts, however, this one was not promptedby plant breakdowns within the state but was due to a major powerplant in the Pacific Northwest going down, resulting in a reductionof 1,300 MW in the imports coming into the state. Peak demand forWednesday was down, dropping below 42,000 MW, and it was forecastto 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 tobuy that much citygate, but for $5.85 I figured I could pack thepipe a bit,” the marketer added.

“The PG&E citygate traded all over the map today,” saidanother marketer. “It started high in the morning ($6.19) thendropped off later ($6.00 and lower). There’s lots of gas coming infrom the south. Anyone who has any capacity on lines from the southis just filling it right up. There’s also a good amount coming outof storage. There’s good demand; don’t get me wrong. These pricesare still high. It’s all relative.”

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

“Storage still is very supportive,” said one observer. “Themarket may come off in the mornings, but people buy it right backup to put gas in the ground. There are people already out buyinggas 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 onlya few cents, but even when the Nymex dipped, cash never went withit.”

Frost and freezing temperatures are expected over the upperMidwest, the Plains states and the Rocky Mountain region later thisweek and through the weekend.

Chicago, MichCon and Consumers prices gained between 3 and 5cents on the day. Chicago basis for October was reported at plus13-14 cents and has widened recently. “When the market thought thatAlliance gas would be coming online Oct. 1, everyone sold Octoberbasis off. Then when the announcement was made that the full amountof gas would not flow until Nov. 1, October prices shot up,” notedone trader. Also supporting Chicago right now is strong Michiganpricing that is being driven by a low storage levels, he added. Theannouncement that Union Gas is adding 2 Bcf of storage capacityalso supported the “storage crunch,” he said. MichCon basis is plus25-27 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 thatare out but they aren’t really doing anything to the market.Storage levels are fine. Last year, we had 180 Bcf of gas instorage at this time in Alberta and right now we have 175 Bcf.Blame the big boys on the block [for the high prices]. They aresaying ‘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 ‘ohyes’ crude oil, which closed at $37.20 but got as low as $36.70 andas high as $37.80. There was huge volatility in crude. The guy whoproposed the theory that gas and crude are no longer linked is thesame guy who said that if you ask 10 women in a bar to go home withyou one will say ‘yes.’ Besides being false, he also forgot to tellyou several of the other nine probably would punch your lightsout.”

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

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