Cash natural gas prices fell a nickel overall Thursday as traders elected to get most of their deals done ahead of the usual volatility following the release of government inventory data.

California, East and northeast points swooned as next-day power prices fell sharply. Declines were widespread, and only a few points posted gains. The Energy Information Administration (EIA) reported a build of 89 Bcf, about right in line with what traders were expecting, but traders used the ever so slightly bullish figures to send futures prices to settle at the high end of the day’s range. At the close, June had advanced 7.5 cents to $4.261 and July had climbed 7.4 cents to $4.307. July crude oil fell 3 cents to $94.25/bbl.

A West Coast energy consultant doesn’t see gains in natural gas prices because of what appears to be the continued shut-down of the San Onofre Nuclear Generating Station (Songs) in Southern California. “I don’t think prices are going to the moon. The gas draws have been there since Songs went down, and the only difference is that the gas draw is higher by 0.4 to 0.5 Bcf/d,” said an analyst with Oregon-based GPS Energy.

“Come summertime, I look at it as with the a normal load, you get less gas burn because there are more efficient peaker units. From a gas perspective, it doesn’t make the market screaming bullish, and all other things being equal, you will have a lower gas burn than last year. Obviously, if you get a hot summer, the gas burn goes up, but I think there are a lot of efficient things being done.”

A recent decision by the Nuclear Regulatory Commission’s (NRC) Atomic Safety and Licensing Board (ASLB) that a public hearing will be required on a request from Songs operator Southern California Edison Co. to partially restart Unit 2 is likely to delay the restart of the plant indefinitely. (see Daily GPI, May 22).

“A lot of things have to happen. There’s a lot of paperwork, public hearings, and I don’t think anyone at NRC or FERC is going to write off on it,” the consultant said.

He added that California was likely to make greater use of Northwest hydro supplies “because California has a carbon market, that will incentivise molecules to move to California from the Northwest. Hydro is zero-emission power. Zero emissions means this is a renewable source that doesn’t pollute the air, and California charges $7/MWh uplift on that.”

A soft California power market helped propel next-day gas prices lower. IntercontinentalExchange (ICE) reported that prompt power prices at major CAISO (California Independent System Operator) market points fell. Deliveries to SP-15 for day-ahead power fell $2.56 to $44.00/MWh, and power into NP-15 slid $1.83 to $39.50/MWh. ICE quoted peak power into Mid-Columbia at $31.35/MWh, down $7.28.

At PG&E Citygate, next-day deliveries were seen down a cent at $4.24, and SoCal Citygates was quoted at $4.31, 8 cents lower. SoCal Border came in at $4.12, down 7 cents, and El Paso S Mainline changed hands at $4.20, 7 cents lower.

At northeast and eastern locations, price declines were deeper. Algonquin Citygates was seen about 35 cents lower at $4.31, and gas into Iroquois Waddington fell about 5 cents to $4.60. Deliveries on Tennessee Zone 6 200 L dropped about 36 cents to $4.47.

On Dominion, gas for Friday delivery shed 14 cents to $4.08, and gas on Tetco M-3 fell 12 cents to $4.16. Gas bound for New York City on Transco Zone 6 fell 16 cents to $4.16.

Futures traders see natural gas prices as a function of near-term weather. “I think prices are the result of good old-fashioned demand not normally seen at this point on the calendar. It’s in the 80s here in Washington, DC,” said David Thompson, principal at Powerhouse, a trading and risk management firm.

“In the broader picture, it is unlikely that the recent highs [May 1] get broken at least in the short term. Eventually, this little pulse of hot weather will end. The highest part of the demand season is coming, and in the not-too-distant future, $4.40 probably does get broken.

“Overall, we are not raging bulls. There is a huge amount of production that comes on line as prices get anywhere north of $4.50. If I am a producer and I start flowing my gas, I’m going to sell futures against it.”

Ahead of the Thursday release of inventory data by EIA, expectations were for another hefty build in the same league as the previous week’s 99 Bcf increase. Last year, 75 Bcf was injected, and the five-year average is for a 90 Bcf increase. Kyle Cooper at IAF Advisors calculated a 92 Bcf gain, and a Reuters survey of 21 market players came in at 91 Bcf with a range of 82-106 Bcf. Bentek Energy, using its flow model, forecast an 89 Bcf increase, and the Energy Metro Desk (EMD) weekly survey showed an average 90 Bcf.

Analysts saw the data as expected. “The 89 Bcf net injection was both in line with market expectations and close to the 90 Bcf five-year average for the date, a neutral figure,” said Tim Evans of Citi Futures Perspective. “The rally in prices largely asserts that the absence of bearish data was enough to allow further buying. Sentiment is still bullish, but the data was not.”

Inventories now stand at 2,053 Bcf and are 680 Bcf less than last year at this time and 84 Bcf below the five-year average. In the East Region, 46 Bcf was injected and in the West Region 11 Bcf was input. Inventories in the Producing Region increased by 32 Bcf.

Producing Region salt cavern storage figure increased by 11 Bcf from the previous week to 239 Bcf, while the non-salt cavern figure rose by 20 Bcf to 589 Bcf. The EIA first split Producing Region facility types in storage report footnotes in March 2012 (see Daily GPI, March 26, 2012).

Addison Armstrong of Tradition Energy sees the market responding to lower supplies and as a result remains perched at the high end of its recent trading range. Overnight, the market “consolidate[d] just below [Wednesday’s] three-week high. Gas prices have rebounded back to the middle of this month’s trading band in the past couple days ($3.883-4.444) after rallying nearly 9% in the past couple weeks as the arrival of hot weather and increasing levels of cooling demands have refocused the market’s attention on its tightened supply outlook. Weather forecasts are expected to fluctuate in the coming weeks, with normal to below-normal temperatures expected across the East. Texas is expected to see above-normal temperatures in the next five days,” he said in a Thursday morning note to clients.

WSI Corp. in its six- to 10-day forecast sees a warm ridge over the Midwest, although “temperatures are now colder over the Southwest and portions of the Deep South late in the period. A warm risk still exists for the Midwest as models continue to build a strong warm ridge over the central-eastern U.S. As for the West, temperatures could still run colder than forecast as a strong upper-level trough digs across the region.”

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