Spot prices were flat to a few cents higher at most points across the continent on Friday generally in response to the continuing rise in Nymex futures prices, but transportation-related constraints also played a role. The cash market managed to add 30-40 cents for the week at most points compared to the previous Friday, while near-month futures set the tone with a solid 55-cent gain Friday to Friday.

Maintenance on Transwestern late last week took a significant amount of gas off the pipe in the San Juan Basin, which helped prop up Blanco prices by more than a quarter Friday. Meanwhile, cold temperatures were expected in the Southern Rockies with Denver forecast to see lows below freezing Friday and Saturday with possible wet snow. The cold was expected to move south and cause some heating demand. That, combined with the Transwestern outage, was helping support Rockies and San Juan Basin prices.

“There are not as many sellers right now in the market, so it’s pretty illiquid in the San Juan Basin, and then you have the colder weather and Transwestern maintenance that’s going on, which has caused SoCalGas to change its buying patterns in the short term,” said a Rockies trader. “TW is doing maintenance on the Ignacio-to-Blanco line. Blanco basically is short maybe as much as 0.5 Bcf/d. I had quite a few people [Friday] wanting to buy TW gas from me, and I had to tell them I couldn’t because I’m moving mine east. The maintenance is going on through May 17. Everyone is being allocated on TW. I’m getting about one third of my volumes to flow.”

He noted California points were up only a few cents, but even though the California market has been soft, it’s apparently been enough to keep Kern River’s expanded system near capacity. “Kern River has been getting a little fuller every day. From May 1 through the first weekend they probably only had about 170,000 Dth/d of excess capacity, but two days ago they had only about 80,000 Dth/d of space, and then [Thursday] it was down to 60,000 Dth/d.

“The problem now is that you’re getting cut going into PG&E and SoCalGas mostly because there are a lot of direct connect power plants that are not burning any gas yet because power is too cheap. Power in California right now is dirt cheap relative to the price of gas. Power is at $40 and gas is at $5; the economics just don’t work. And there appears to be plenty of hydropower in state.”

Static storage demand, mild temperatures, excess power and poor spark spreads left little room for upward gas price movement at eastern and midwestern points, according to traders. “Cash is quite weak [Friday] relative to the screen even though prices may be up a few cents from Thursday,” said a Midwest seller. “Temperatures are mild and there’s not much demand other than for storage. They are socking it in the ground but there’s no incremental change there.”

He said Chicago prices were up from Thursday about a nickle to the low $5.70s and high $5.60s, and Dawn averaged in the mid $5.90s, up 5-10 cents. Iroquois Waddington was in the mid to high $5.80s flat to down a couple cents, and Iroquois Zone 2 was close to $6, but saw only slight activity.

“Dracut was quite weak because there’s just no demand up there. Everyone is burning oil and there’s mild weather. Dawn was trading at about plus 17 cents to the screen, which is down from 20 earlier in the week. Last bidweek Dawn basis was in the high 20s.”

Another source said he saw Dracut trade down almost flat to the Henry Hub before creeping back up later in the trading session. Dracut normally has a basis of 20-35 cents. “When the hub was at $5.70-72, Dracut was trading at $5.74-76. It did manage to bounce up at the end though. The lowest basis up until [Friday] was 12 cents and that was traded [Thursday]. There’s just no demand, no heating load. Storage is there, but you can only get so much of that, and it’s been relatively constant. Power prices certainly aren’t there for the weekend, the spark spreads aren’t there; I mean we have $33-34 for power on Saturday and Sunday. What are you going to do with that? Even a 7,000 heat rate doesn’t work when you have $6 gas.

“There was some demand for Monday only because Monday power prices were up to $54 at Nepool. People were looking for Monday-only gas but it became a game of how they would hide it over the weekend. Power next week is priced in the low $50s so that may be strong enough to run a plant, but not enough to support gas prices.”

In the Gulf Coast region, Southern Natural called a force majeure after a leak occurred at Main Pass 296 during maintenance, but the outage was expected to be short-lived and had no significant impact on prices. Prices in the region, however, did continue higher Friday and that produced some opportunities for arbitrage, a Northeast generator said. Specifically, he found it profitable to sell his Gulf supply, shut-off long haul transport, and buy in the market area. “With only a 50-cent basis between Tetco ELA and Tetco M3, it just didn’t make sense to pay the transport of roughly 57 cents,” he said.

The economics made sense Friday to inject gas into producing region storage, said a marketer. Tennessee Zone 0 prices were in the low $5.50s at one point on Friday. “If you inject that gas into the ground, you can hedge it with a July futures contract which settled at $5.879 Friday. Even with a Nymex basis of -20 right now at Tennessee Zone 0, you can still make a nice little profit,” he said.

Early estimates for next week’s storage report are ranging between 70 and 90 Bcf, compared to the 80 Bcf injection last week, the 62 Bcf injection during the same week last year and the five-year average of 75 Bcf for the week. “If injections match the five-year average for the balance of the season, storage levels will only reach 2,533 Bcf,” noted Citgroup futures analyst Kyle Cooper. As a result Cooper expects injections to average 116% of the five-year average this season so that working gas levels can make it over 2,800 Bcf. He’s expecting an 80 Bcf injection next week.

Tim Evans, futures analyst with IFR Pegasus said he’s expecting 80-85 Bcf, which could help pressure futures prices into a downward correction possibly as low as $5.25 after all is said and done.

Working gas levels on May 2 stood at 821 Bcf, nearly 40% below the five-year average and 50% below levels at the same time last year. Working gas levels in the key East region are at 378, or 45% below the five year average. The producing region is 48% below the five year average at 251 Bcf and the West is only 4% below the five year average at 192 Bcf.

©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.