Natural gas prices are increasingly uniform across the country and “we are very, very close to having a national type of gas market,” Federal Energy Regulatory (FERC) officials said during a discussion Thursday of the FERC’s Summer 2010 Energy Market and Reliability Assessment.

“Last year when we made this presentation [see Daily GPI, May 21, 2010] we were concerned about two locations as still being kind of out of the market: Florida…and Northern California and the Pacific Northwest,” said David Andrejcak of FERC’s Office of Electric Reliability. “The opening of the FGT [Florida Gas Transmission] expansion…has, it appears, relieved some of that congestion in Florida, and we expect that similar occurrences will happen with the Pacific Northwest” because of strong hydroelectric generation.

Prices are more uniform than in the past, and they are uniformly higher than a year ago, according to Alan Haymes, an economist in FERC’s Office of Enforcement.

“As of May 1, natural gas forward prices for the major U.S. hubs are about 40-70 cents higher for this summer than a year ago. Production is at a high level, largely from [the] Marcellus Shale, but the increase in production may be just enough to offset growth in underlying demand, while storage levels are 8% lower than last year at this time.

“A large part of the increase in demand is from greater power production,” Haymes said. “Additionally, particularly recently, we have seen the reemergence of the effects of financial fundamentals in the gas market. In fact, like many commodity markets, these forward prices have fallen about 10% since May 1.”

The level of change has been relatively constant across regions, reflecting a trend toward a more national market, he said.

The consensus forecast for the upcoming hurricane season is for an above-normal number of tropical storms (see related story), but natural gas infrastructure may not be as vulnerable to hurricanes in the Gulf of Mexico as in the past, Haymes said.

“Overall, the risk to U.S. natural gas supply of a Gulf hurricane continues to decline as the share of production from onshore basins out of range of hurricanes has more than doubled since hurricanes Katrina and Rita in 2005.”

Electricity demand forecasts are essentially unchanged when compared to last year, FERC said. Generation reserve margins are expected to be adequate for the summer, and drought conditions which are expected in Texas and the Southwest aren’t projected to effect power generation.

“This year some areas, such as Texas and the Southwest, are projecting a small amount of load growth over last year’s forecast, while loads in other areas, such as the Pacific Northwest, are projected to decline slightly,” Andrejcak said. “Overall, NERC [North American Electric Reliability Corp.] forecasts that the total U.S. load, when weather adjusted, will rise by less than 1% when compared to last year, while the capacity available on peak is projected to rise by 3%.”

Abundant hydroelectric production will lower electric prices in the west, according to the report. “Average snow pack in the Pacific Northwest and British Columbia was as much as 150% of normal as of April 28,” Haymes said. Runoff from that snow pack should increase hydroelectric production and reduce the need for gas-fired generation in the Pacific Northwest and California, he said.

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