The complete lack of demand and flood of supply on the market last week left many considering a return to historical price levels, particularly in the Rockies on Friday where prices dropped to near $1. The $5-$6 dollar crash in prices at the Southern California border into SoCalGas last week including a $2 tumble on Friday and the recent declines in western power prices were enough to prompt California Governor Gray Davis to declare the “war” on energy prices officially “won.”

Davis told the San Francisco Chronicle the state has “finally turned the corner.” However, apparently in almost the same breath he noted the state probably will face a difficult summer with rolling blackouts. It was a little unclear how he reconciled the two.

Despite the continuing cash crash, futures were on the rebound Friday in response to predictions of above normal temperatures in the next couple weeks, which could quickly change the cash picture. But for now the western crash is stealing the show. There were operational flow orders on both Southern California Gas and Pacific Gas & Electric on Friday for Saturday flows. The OFOs pushed a flood of gas back into the supply basins, hammering gas prices all the way down to $1.10 at Opal, WY. Gas prices at the border plummeted to lows around $3.20 at Topock into SoCalGas.

The California utilities have very little demand to serve because of mild temperatures and more power coming into the state from the Pacific Northwest. Even though they were putting gas into storage at maximum rates, they still weren’t making a dent in the excess supply situation on the intrastate pipeline grid, a SoCalGas spokeswoman said.

“There’s no place for the gas to go if demand is not there,” she said. “If the receipts on our system are exceeding demand and storage injections, we have no other option” than to call an OFO and restrict receipts. She said injections reached 900 MMcf/d last week and SoCal’s storage levels currently are about 50% full or near the five-year average. “We expect to meet or exceed historically full levels by the winter,” she added.

The OFO provisions on SoCal state that if a shipper exceeds his daily burn by 10%, any volumes above that level will be purchased by SoCalGas at 50% of its weighted average price of gas. PG&E had a 7% tolerance on its OFO on Friday for Saturday’s flow with $25/Dth penalties for shippers exceeding 7% of their nominations.

“Prices were pretty ugly here today,” said a Rockies marketer. “San Juan was as low as $1.56. The low at the border was about $3.30 but it came back up toward the end above $4. With the OFOs there was gas shut back everywhere. Whoever could take it was big winner. Demand is just not there now. But I’ve got news for the California governor, the energy price spikes may be over right now but the energy crisis is not. This is June. We still have July, August and September left. I don’t know if this is the eye of the hurricane but there will be some buying left before this storm is officially over.”

Gas prices at most locations outside the Rockies and California were down another 5-10 cents on Friday. Midcontinent and Midwest points were down about a dime on average, while East Texas and Louisiana points were down a nickel to a dime. West Texas prices lost 15-20 cents mainly in reaction to the tumble out West. However, prices remain in the mid to high $3s on average, and futures suddenly are on the rise once again after being unable to penetrate key support levels in the high $3s last week. With July so far above June cash, something is likely to give this week.

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