Western heat, the post-weekend return of industrial load and storage injection buying resulted in rebounding prices Monday. Major strength throughout the energy futures complex was expected to keep the rally going Tuesday.
A couple of flat points were in the mix, but for the most part quotes were up between a nickel and a quarter. Western points saw most of the upticks of 15 cents or more as a heat wave ranged along the West Coast from the desert Southwest to the Pacific Northwest.
Despite a dearth of weather load in the rest of the country, big gains in energy futures were expected to keep a floor under cash prices Tuesday. The natural gas screen rose nearly 20 cents based both on continuing concerns about a hot summer hampering storage refills and the influence of new spikes among oil-related products at Nymex.
Crude oil for June was up about half a dollar to just shy of $37/bbl after weekend suicide boat attacks on oil export facilities offshore Iraq and continued insurgent fighting within the nation. What has been referred to as the “terror premium” or the “fear factor” was at work in crude markets again, one source commented.
“I couldn’t believe it; I was wearing shorts Sunday because it was so warm,” said a marketer in the Pacific Northwest. A cold front from Canada would be cooling off the region Tuesday, but forecasts called for heating up again later in the week. Meanwhile, it looked like heat in California was driving much of the western market, he said.
Indeed, temperatures hitting triple digits in inland California prompted the state’s electricity grid operator to take the unusual step of issuing a weekend alert Sunday for the day-ahead market (see story in Power Market Today). But its forecast of a sharp rise in peak load requirements Monday had the desired effect of eliciting extra power supplies that averted any problems.
The increase of cooling demand in California and east-of-California markets reverberated in the Southwest basins, Rockies and Canadian export points, where double-digit gains were common Monday. Waha and Permian Basin price advances were especially strong, noted an intrastate Texas trader.
There wasn’t much load in the Lone Star State because its utilities have relatively little air conditioning demand to satisfy at this point, he said. Also, the South Texas 2 nuclear unit is due to begin returning from a refueling/maintenance outage Tuesday, followed by the Comanche Peak 1 nuke later in the week (their progress can be monitored in NGI‘s daily reactor status report at https://intelligencepress.com/subscribers/power/nrc/). That may be just in time, the trader said, as temperatures are still mild in Texas now but probably will be warmer next week.
With intrastate Texas demand relatively weak, it looked like most Waha gas was westbound Monday, the trader continued. Waha is the “pivot point” in the Southwest, he noted. San Juan Basin supplies virtually always are sold into California or east-of-California (EOC) markets, and Permian Basin gas tends to head westward most often, he said. But Waha gas will go east into Texas, north into the Midcontinent/Midwest or west to California and EOC buyers, depending on which area wants it most.
Sonat recorded one of the Gulf Coast’s biggest jumps as the pipeline completed shut-in testing Monday at its Muldon (MS) Storage Field, restoring CSS customers to 100% of their maximum injection rights for Tuesday’s gas day.
Florida Gas Transmission did not extend Friday’s Overage Alert Day notice into the weekend, but on Monday it was cautioning shippers of the potential for a renewal of the OFO-like notice. FGT production-area prices rose by a dime or slightly less.
“Artificial” was a Northeast utility buyer’s characterization of regional citygate gains of a dime to 20 cents. Despite a mild cold front due Tuesday, “there’s no real weather demand in our area,” she said. The buyer could only hazard a guess that oil futures strength and a rush to inject storage now before supplies get more expensive was propping up cash gas.
One psychological factor underlying current market bullishness is concern over dwindling exports from Canada. Dallas-based Southwest Securities noted Monday that gas well completions north of the border set a record last year, and are likely to exceed that historic level by about 20% in 2004 (see related story). Yet Canadian gas production has increased only modestly, which Southwest Securities analyst John Gerdes said had an “obvious” reason: “the Canadian industry is drilling/completing materially less productive gas wells” than before. “Accordingly, the population of wells drilled, in aggregate, must have disproportionately stronger declines and/or fewer reserves — i.e., the profile of shallow gas wells.”
A marketer said he was not doing any May deals yet, but so far the buying interest he was seeing far outweighed the supplies being made available. The market definitely will see much higher indexes in May than in April, he said.
A Midwest utility buyer reported getting basis offers for May at the demarcation point of Northern Natural Gas around minus 35-36 cents. One potential supplier also mentioned doing a demarc fixed-price deal at $5.38, the buyer said. However, his bidweek needs will be minimal “because May is one of our mildest months.”
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