The physical market bounced higher by close to a dime on Monday as an April snowstorm buffeted the MidAtlantic and Northeast and western prices firmed on nuclear outages. Strong futures trading also added to the bullish mix, and at the close May had risen 8 cents to $2.007 and June had posted a gain of 8.1 cents to $2.096. June natural gas traded a hefty 143,000 contracts and June crude oil shed 77 cents to $1.0311/bbl.
Traders noted that although next-day prices at eastern points were strong, “we’re coming from pretty muted levels,” said a northeast marketer.
“This time of year it is not uncommon to have nuclear reactors down as well. We knew that was coming.” He added that once the cold weather squirted through the East prices would likely return to earlier levels. “That’s how I think it is going to shake out.”
Next-day gas prices were firm throughout the East as a “heavy wet snow continued to come down over the mountains of West Virginia, western Maryland, western and northern Pennsylvania and part of upstate New York Monday,” said AccuWeather.com meteorologist Alex Sosnowski.
Customers experienced power outages in four states with western Pennsylvania showing 20,500 customers affected, 1,100 outages in upstate New York and West Virginia, and western Maryland having to deal with about 500 outages, Sosnowski said.
“A narrow swath of accumulating snow has occurred, mostly in the higher elevations of the central Appalachians. A mixture of rain and snow was falling at lower elevations. The storm will also pack gusty winds. The worst of the wind on the front side of the storm will take aim from New York City on north and east. Since the storm is near the coast and will hook inland, the worst seas will be in coastal waters.
“On the storm’s back side, gusty winds will funnel cold air in across the Great Lakes, Ohio Valley and southern Appalachians. It is conceivable winds are strong enough in this sector as well to down trees even without snowfall. For portions of the central Appalachians, this will seem like the second of two bookend snowstorms in ‘a year without a winter.'” Sosnowski added.
Northeast points saw the biggest price boosts. Deliveries to Algonquin Citygate jumped by nearly 30 cents and gas into Iroquois Waddington vaulted similarly. On Tennessee Zone 6 200 L Tuesday parcels gained just under a quarter.
Points further south were not hit with quite the same increases. Transco Zone 6 New York added a dime and Tetco M-3 rose 12 cents.
Along the southwest transportation corridor from West Texas into southern California prices firmed as the third of four California nuclear reactors was down for planned maintenance or repairs.
Pacific Gas and Electric Company (PG&E) began scheduled refueling and maintenance at the 1,073 MW Diablo Canyon 1 power plant Monday. The company said workers will begin work to replace a portion of the reactor fuel, test systems and components that aren’t normally accessible, and install a new digital process system to monitor and safely operate the unit. Typically planned outages require about 30 days. Diablo Canyon 1 is located about 12 miles southwest of San Luis Obispo, CA.
In addition to Diablo Canyon 1 the 1,070 MW San Onofre 2 and the 1,080 MW San Onofre 3 are also offline leaving the state with just one reactor, the Diablo Canyon 2 in operation.
The three nuclear plants are just a portion of the 37 nuclear plants shown as either offline or producing at less than 100% of full power in NGI’s NRC Power Reactor Status Report. The 37 nuclear plants’ generation represents a loss of a stout 23,778 MW out of total U.S. capacity of 100,900 MW generated from 104 facilities.
The outages helped increase loads from West Texas to southern California. “I don’t like paying nearly the highest gas prices in the country. The Milagro processing plant is also down, and that is putting [price] pressure on the basins,” said a California buyer.
He added that even after the midday close of cash trading “there was a little squeeze on SoCal Citygate that sent prices up.” SoCal Citygate ended up nearly adding a dime.
Quotes on El Paso surged. El Paso Permian jumped just over a dime.
Other West Coast-bound points were firm as well. SoCal Border was up close to a dime and PG&E Citygate was up a few pennies.
In the Midwest firm pricing also prevailed. Chicago Citygate was higher by a couple of pennies and Alliance and Consumers added about a nickel apiece.
Futures firmed as well, but traders were not impressed. “We’ve got options expiration on Wednesday, and I think we will just sit here between $1.95 and $2.05. I think the $2 strike price will see some activity as traders try to defend or attack it. Some of the spreads came in a little bit today, but I think that was just short covering,” said a New York floor trader.
“I think we’ll trade 5 cents on either side of $2.00 this week, and by next week we should test down to $1.85 to $1.90,” he said.
Analysts are puzzled there has not been more of a production response to low prices. According to Mike DeVooght, president of DEVO Capital, the one year strip now stands at $2.565, down 9.5 cents from a week ago. “In the past when we have seen historically low prices you would start to see a significant drop in drilling activity and talk of shut-ins. But because of strong liquid prices and lease drilling, we are not seeing the decline in production and drilling activity we have seen in the past during low price periods.”
DeVooght is looking for a price level that is capable of causing production declines, “but the price level is yet to be determined,” he said in a weekend note to clients.
He currently advises trading accounts and end-users to stand aside, and for those with exposure to falling prices he advises holding on to October $2.50 puts to cover the summer strip. He says he would look at “any significant rally from current levels as an opportunity to do some forward sales in the summer strip. At this time, and at these price levels, we are not excited about establishing new hedges here.”
On Friday Baker Hughes reported that for the week ended April 20 gas-directed rigs rose by 7 to 631, but still down sharply from the 878 in operation a year ago. Total U.S. rigs rose by 22 to 1,972, well ahead of the 1,800 of a year ago, and horizontal rigs, those typically utilized in the popular shale plays, increased by 10 to 1,155, above the 1,020 active a year earlier. One factor not disclosed by rig count data alone is the great increase in rig productivity. Often one rig will drill several wells from a single location, much like offshore, and thus account for multiple productive outcomes. In addition, drilling for liquids remains high and the associated gas also helps temper any decline. “The combined oil and gas rig count since October is off just 2%,” said Tim Evans of Citi Futures Perspective.
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