Cash prices overall fell an average of about a nickel Wednesday as temperature outlooks held close to seasonal norms and power generation economics got out of alignment. New England points suffered multi-dollar declines, but eastern and Texas prices weakened as well. At the close of trading the expired December contract had fallen 7.3 cents to $3.696 and January had lost 9.1 cents to $3.801. January crude oil fell 69 cents to $86.49/bbl.
Next-day prices at New England points took major hits as traders confessed that temperatures were not expected to moderate, but unfavorable power plant economics deterred the purchases of high-priced gas. “It’s not getting any warmer, but the basis is still pretty high,” said an eastern marketer. “The power generation folks just couldn’t get going. The heat rates are too low and they weren’t buying.
“Something has to happen. If power is needed, the price of power will go up, and we may see intraday buyers [Thursday], which means the price will go up.”
Eastern power prices took a nose dive. IntercontinentalExchange reported that day-ahead LMP (locational marginal prices) at the New England Power Pool’s Massachusetts Hub plunged $21.40 to $78.64/MWh, and at the PJM West Hub next-day real-time peak power fell $6.22 to $42.02/MWh.
The problem for gas buyers is that older, less-efficient generating plants have higher heat rates (MMBtu/MWh) than the newer gas-fired combustion turbine units. With power prices at $78.64 and gas at New England locations just below $10, a heat rate of about 8 would be required for economical power generation from gas. Heat rates of power generating facilities vary with capacity and operating rate, and New England power plants are likely having difficulty with spot natural gas and power prices. Figures show that even a 400 MW coal-fired steam generation unit operating at 80% capacity will operate at a heat rate of 9.0. Modern gas-fired combustion turbines will often operate at a heat rate of 7 to 8. A small gas-fired steam generation unit of 50 MW operating at 80% capacity will operate at a heat rate of 11.8.
Forecaster WeatherUnderground.com said Wednesday’s high in Boston of 39 would hold through Thursday before dropping to 32 on Friday. The normal high in Boston is 47. New York City’s Wednesday high of 48 was predicted to slide to 45 Thursday and Friday. The normal high in New York at this time of year is 49.
Next-day gas at the Algonquin Citygate was quoted at $9.78, down $2.21, yet deliveries to Iroquois Waddington were only up a cent at $6.07. Deliveries on Tennessee Zone 6 200 L plunged $2.69 to $9.12.
Farther south, spot prices also eased. Gas on Tetco M-3 fell 24 cents to $4.20, and deliveries on Dominion shed 7 cents to $3.84. Gas headed for New York City on Transco Zone 6 added 9 cents to $5.40.
On the West Coast, a mixed temperature outlook resulted in mixed next-day gas prices. Northern California was anticipated to see temperatures moderately higher than normal, but southern California was forecast to see near-term temps slide below normal.
Wunderground.com predicted Los Angeles’ high Wednesday of 67 would ease to 63 on Thursday and 64 Friday. The seasonal high in Los Angeles is 70. San Francisco’s Wednesday high of 64 was predicted to hold through Thursday before falling a degree Friday. The normal high in San Francisco at this time of year is 60.
At Malin, next-day gas was quoted at an average $3.77, down 6 cents, and packages at the PG&E Citygates lost a nickel to $4.01. At SoCal Citygates Thursday gas came in two pennies lower at $3.97, but at SoCal Border next-day parcels were up a cent at $3.92. On El Paso S Mainline next-day gas added 3 cents to $3.95.
Texas points averaged a little over a nickel lower. Thursday gas at El Paso Permian was quoted about 7 cents lower at $3.61, and deliveries to NGPL TX OK were off by 6 cents to $3.68. At Carthage next-day gas was seen 6 cents lower at $3.66, and at Katy Thursday gas came in about four cents lower at $3.66 as well. At the Houston Ship Channel spot gas eased 6 cents to $3.62, and on Transco Zone 1 next-day deliveries were 4 cents lower at $3.70.
Futures traders saw a tempered retreat to the day’s trading. “I don’t think it was very painful for anyone involved, and the decline was orderly,” said a New York floor trader. “A bearish [storage] report could send prices [further] below $3.70, but on a strong dip watch for the market to hold the mid $3.60s and then the lower $3.50s.”
A wide range of storage estimates may make it difficult to decipher what is bearish and what is bullish. A Reuters survey of 30 traders and analysts revealed a range of plus 4 Bcf to minus 28 Bcf with an average 12 Bcf pull. ICAP Energy calculates a draw of 7 Bcf, and Bentek Energy is looking for a withdrawal of 2 Bcf. Last year at this time, 2 Bcf was injected, and the five-year average stands at an 18 Bcf reduction.
Traders may have seen Wednesday’s decline as orderly, but analysts suggested Tuesday’s modest gains reflected a “temperature forecast [that] cooled to a modest degree and the market focus shifted toward the expiration of options on December futures…” said Tim Evans of Citi Futures Perspective.
In his view, Thursday’s Department of Energy storage report also took on somewhat greater significance. “While the market consensus is still in formation, we’re seeing a relatively wide range of estimates so far, anything from the modest 4 Bcf build our model projected up to net withdrawals close to the 18 Bcf five-year average level,” he said.
Evans’ 4 Bcf build along with “temperatures well above normal for next week that will translate into bearish storage comparisons” put inventories at 311 Bcf greater than the five-year average by Dec. 14. “A rising storage surplus is typically bearish for prices over the intermediate term, and we see potential for several weeks worth of speculative long liquidation that could send January futures toward the $3.25 level in out estimation,” he said Tuesday.
He notes that the firm’s “suggested $3.86/MMBtu sell-stop was triggered on Monday, opening a short position in January natural gas futures. We recommend working a protective buy-stop at $4.06 to limit initial exposure on the trade but would lower that order to $3.96 on a break of $3.80.”
Technical analysts have some “must hold” parameters in mind for the soon-to-be-spot January contract. “With the December contract expiration upon us, our focus shifts to the January contract. [We] see $3.774-3.757-3.697 as key support for January,” said Brian LaRose, an analyst with United ICAP. “Hold above this zone, and the case for further upside will remain intact. Fail to carve out a bottom, and a larger degree ABC pattern is likely to unfold from the $4.088 high. A=C targets $3.570-3.433. 1.618 [of] a=c targets $3.267-3.124.”
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