Southern California border prices pushed well beyond $7 Tuesday,while PG&E citygates and Malin appeared to be in a catch-uprace with huge upticks of nearly a dollar at both NorthernCalifornia points. However, the big news that El Paso had gottenfederal approval to resume reduced service on its South Mainline’sLine 1110 did not come until late in the afternoon (see relatedstory in this issue).

Outside of the frenzied California situation, San Juan/Rockiespoints also recorded sizeable gains, while the rest of the swingmarket was flat to slightly higher.

Effective with Tuesday’s Intraday II scheduling cycle (cycle 4),200 MMcf/d could be nominated through El Paso’s Keystone andPecos River Stations on Line 1110. That limit will rise to 400MMcf/d for today’s evening scheduling cycle (Cycle 2); the 400MMcf/d rate will continue until further notice, El Paso said. Dueto repair work on Line 1102 that was being done while Line 1110 wasdown for repairs, flow south from Plains cannot be scheduled untiltoday’s evening scheduling cycle (Cycle 2).

A marketer contacted after the El Paso announcement said it’sreasonable to expect a bit of softening in California and otherwestern markets today, but he doesn’t see a crash by any means.”Sure there will be some extra gas coming into the market, but itwill replace only a part of the shortfall. People have shown withtheir premiums that they still want El Paso-Waha pool gas [becauseof its ability to bypass the rupture area]. People that had beennominating twice as much gas as they needed in order to get thedesired amount to the border will be able to nominate less now, butthey’ll still have build in a volume cushion.”

Malin and the PG&E citygate saw ranges exceeding 50 centsTuesday as the utility expanded a low-inventory OFO to systemwidestatus with very tight tolerance (see Transportation Notes). Therewas some delay in getting the new OFO posted on the Pipe Rangerbulletin board, which caused initially higher prices to shoot upeven further later in the morning. A couple of late citygate quotesgot slightly above $7.

“I haven’t seen one of those [PG&E OFO with such heavypenalties and tight tolerance] for a very long time,” commented onetrader. “Looking at the inventory situation [Tuesday] morning, youknew something was going to happen. I tried to buy as much aspossible early on; as soon as the OFO was called, prices went tothe moon.”

The Palo Verde 2 nuclear unit experienced an unscheduled outageover the weekend, but was back to 25% power Tuesday afternoon andexpected to be back at 100% today, according to a utility buyer. Itwas fortunate that the desert Southwest and California have cooledoff a bit lately, he added; otherwise the nuke’s loss could havehad problematic results.

Other than basis and indexing, the bidweek market remained slowin developing fixed prices even after September futures settled at$4.618, sources said. Basis was looking mildly weaker than onMonday, a couple of traders said. “People are not anxious to tie upgas at these prices,” said a Midcontinent producer. “They’re alsoholding off on making deals until they see the forecast for thelong three-day weekend.” He said bid offers on Panhandle Easternhad fallen to the $4.46-50 range after being as high as $4.55earlier.

A couple of traders reported California border basis forSeptember rising still further to plus 260-65. However, that mayrepresent the peak, according to one, since October basis intoSoCal Gas was starting to retreat. A marketer reported hearingPG&E citygate basis at plus 224, which would have put fixedprices in the $6.80s.

Before the late news of some El Paso capacity being restored,sources continued to disagree about California market strategy.”Eventually these prices are going to fall out of bed,” said alarge aggregator. “It’s going to be a gamble on when.” But amarketer was advising his end-user customers to term up at leastpart of their September purchases at the prevalent first-of-monthlevels. “There exists just too much upside risk during the monthdue to hurricanes, heat and the possibility that El Paso will notcome back up as soon as the market expects. Plus, you have themakings of a classic short squeeze. Everyone jumps into the swingmarket and prices spike under the buying pressure.”

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