Incredible as it may seem, at least one Rockies trader was willing to let gas go for the weekend at a penny Friday. IntercontinentalExchange (ICE) reported that a 1-cent deal was among 84 trades done on its on-line system. Obviously very little changed hands at such a low level, as other Opal quotes on ICE ran as high as $1.31 and the point averaged about 95 cents Friday in NGI’s survey.
One source speculated that with the 1-cent deal being so out of line with the rest of Opal’s numbers, it likely was a special case of distressed gas that was sold in late trading because the supplier had no other options.
All but one of the other Rockies points also retreated to sub-dollar averages amid overall cash market softness. The previous day’s plunge of 40.9 cents by October futures and a dearth of significant cooling load outside the desert Southwest were the chief factors in the price drop, while the weekend hiatus of industrial demand also played a part.
A few scattered points that were flat to up a little more than a dime averted an across the board run of softness. Other than the triple-digit plunges in the Rockies, other points saw more moderate dips that ranged from 2-3 cents to about a quarter. The 1-cent deal wasn’t reported to NGI‘s price survey, which had a 15-cent low at Opal in a trading range that spanned more than a dollar.
There is no theoretical reason why prices must be above zero, according to James F. Wilson, a Washington, DC-based principal with the Emeryville, CA-headquartered LECG consulting and expert services firm. “If you have a producing well and would incur substantial cost to shut it in, you are better off paying someone to take the gas (that is, receive a negative price), if necessary, rather than shut in,” Wilson told NGI. “So don’t be surprised if you see Rockies prices dip below zero at times in the coming weeks, as [local Rockies] storage fills and pipelines remain full, so there is nowhere for the gas to go.”
A Midcontinent producer said Wilson could be correct, but only in the specific situation of the transport-constrained and storage-short Rockies. “I don’t think it would happen anywhere else,” certainly not in the Midcontinent, where there are plenty more options available to producers, he added.
Chesapeake Energy recently announced that it was shutting in a net 125 MMcf/d due to currently low gas prices (see Daily GPI, Sept. 5).
The producer went on to note that CenterPoint East was trading below the rest of the Midcontinent Friday, which was unusual because the point usually commands a modest premium.
Another Midcontinent producer elaborated on the potential for negative pricing, saying he hadn’t seen ICE Friday “but would not be surprised if that trade [at 1 cent] occurred. If a well can be shut in without causing damage to the formation(s), then a producer will shut in,” he said. Lifting costs probably exceed $2, “so it wouldn’t make economical sense (or cents!) to flow,” he added. But if a shut-in could cause irreparable harm to the formation due to watering up, etc., then “yes,” Wilson “is correct in what he is saying,” the producer said. “Also, some owners/producers/operators may just need any cash flow to keep the lights on.”
According to a Dow Jones Newswire report, Petroleos Mexicanos said Friday it was on schedule to resume flows by late Monday through its gas pipelines that were damaged by terrorist-caused explosions last week.
Tropical Depression Eight strengthened into Tropical Storm Ingrid and as of 5 p.m. AST Friday was 710 miles east of the Lesser Antilles and moving slowly to the northwest, the National Hurricane Center (NHC) said. Ingrid was increasingly looking like a nonevent for the gas market, with the NHC’s five-day “cone” of projected tracking indicating that the storm’s path likely would aim it closer to Bermuda instead of the U.S. The agency’s late Friday afternoon advisory also said Ingrid was “forecast to remain out to sea and weaken.”
The remnants of Tropical Depression Humberto, for which NHC quit issuing advisories Thursday, was over Alabama Friday afternoon and continuing to dump cooling rains in parts of the South. Birmingham, AL, was forecast to see highs in the low 80s both Thursday and Friday.
A systemwide high-inventory OFO for Saturday by PG&E helped depress western numbers. However, the PG&E citygate and Malin recorded declines of only a little more than a dime.
Florida Gas Zone 3 fell nearly a dime despite Florida Gas Transmission keeping an Overage Alert Day in place through at least Friday, citing forecasts of mid 90s temperatures in the Florida market area. The Florida citygate was flat.
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