As anticipated, the one-two punch of a larger-than-expected storage injection and what is believed to be the largest-ever power blackout punished cash prices Friday. Declines ranged from about 15 cents to more than half a dollar, with a majority of points dropping 30 cents or more. Northeast citygates predictably racked up most of the largest losses.

Absent the above two overwhelming influences, there is a chance that trading for weekend flows might have pushed quotes a bit higher, one source said. He pointed out that close-to-normal summer heat had settled into the Northeast and Midwest after a long absence, and that Tropical Storm Erika, while considered relatively unthreatening to most offshore production in the Gulf of Mexico, still might have lent a psychological edge to the market through its potential for veering north towards Louisiana and/or the upper Texas coast.

But in the battle of fundamentals a heat wave and a hurricane were no match for high storage and blackouts. The screen’s drop of nearly 29 cents Thursday in response to the highly bearish storage report had its usual carryover effect in the cash market Friday. The fact that many power generation units and industrial/business facilities in the Northeast, eastern Canada and parts of the Midwest were non-functioning Friday and reportedly turning back gas that they couldn’t use only added to the problem.

Although he wasn’t aware of any significant power plant problems lingering in New England Friday, a Northeast trader said prices there got hit just as bad as in the rest of the region. “I heard Tennessee was stuffing major amounts of gas into storage today [Friday],” which he perceived as almost certainly a result of market-area customers rejecting supplies they had bought Thursday but had no way of burning Friday. He was puzzled about expecting “a ton of intraday gas” to be available but having difficulty finding any.

A news report quoted a TransCanada spokesman as saying nominated volumes on both its intra-Alberta (NOVA) and mainline systems had risen slightly despite the market-area outages, which could only mean that much of that gas was destined for storage.

Several sources speculated on how much the removal of substantial power generation/end-user load would affect the upcoming storage report. However, one pointed out that due to the Friday morning deadline for submitting storage data to the Energy Information Administration, only a small extra impact would be felt in this week’s report, but the report on Aug. 28 should feature a much larger volume than it normally would have.

Normally a tropical storm in the Gulf would be a bullish event, but then Friday’s market was hardly normal. As of 4 p.m. CDT Friday the center of the speedy Erika (moving west at nearly 22 mph) was about 245 miles east of Brownsville, TX, which is just north of the Mexican border. Such rapid progress meant the storm would have less time over warm open waters to intensify, but the National Hurricane Center expected Erika to make landfall near the border early Saturday morning as a hurricane.

There was anecdotal evidence of some production shut-ins primarily in the western reaches of the Gulf (see related story), where the offshore infrastructure tends to be sparser than farther up the Texas and Louisiana coasts. However, several traders dismissed the shut-ins as negligible, particularly in light of the blackout-related demand outages. An eastern utility buyer said she couldn’t see Erika as having much effect because it was moving so fast “that producers couldn’t have had much time to react.”

A New England utility buyer said Friday’s trading was complicated by being unable to talk with some of her usual contacts in New York City. Similarly, it was a slow day for a utility buyer in a section of the Midwest unaffected by the power outages, primarily because some trading counterparties “couldn’t get into work.” Temperatures in the high 80s would last through Saturday, she said, but then would fall back to the low to mid 80s then.

Pipelines to the Northeast reported no transportation problems Friday (see related story).

A Midwestern marketer reported being unable to get through to the Detroit Edison nominations system, “but they’re saying let it slide for this weekend and we’ll sort it out later.” According to news reports, officials were estimating that power might not be restored to much of the greater Detroit area until Sunday.

A trader who focuses on the Midcontinent/Midwest market felt somewhat removed from the blackout brouhaha. “The only impact to us was from Thursday’s storage number,” he said. “Of course we don’t trade the Northeast, so I imagine the story might be different there and in the Gulf Coast.”

In a similar vein, a California trader commented, “I didn’t notice any major difference today. From where I’m standing prices are down 30-40 cents but the process of trading was still fairly smooth. Of course, we are about as far away from the Northeast as is possible within the Lower 48 states, so that might have something to do with it.”

A Florida utility buyer thought “it was kind of funny” that earlier this week Florida Gas Transmission had extra gas to sell, “and now we’re under an Overage Alert day notice because of dropping linepack” (see Transportation Notes).

Admitting that his confidence in predicting this week’s EIA report was “exceedingly low,” analyst Kyle Cooper of Citigroup said his initial estimation is for a build “quite similar to this week [that is, around 82 Bcf], but with a bias toward a larger build.” This would compare with year-ago and five-year average volumes of 37 Bcf and 57 Bcf respectively.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.