Expectations of another massive weekly storage injection figure — confirmed by AGA at 117 Bcf for the week ending June 1 — combined with milder weather and high line pack, put significant downward pressure on cash and futures prices yesterday. Most eastern points were down 20-30 cents, while California prices into PG&E at Topock dipped below $3 in response to a high inventory operational flow order. SoCal-Topock prices dropped more than a dollar.

“Prices were extremely low on PG&E’s system to where it didn’t make sense for many shippers to take gas to the border or the citygate,” said one western marketer. “We can’t see how gas is being transported out there because San Juan was very strong in relationship to PG&E and so was Permian. We bought PG&E Topock at $2.90. Citygate was trading mainly at between $3.25 and $3.50. It’s very weak, and San Juan was trading at $2.95 so there’s no reason to transport to the border.”

Between April 1 and June 1, the daily PG&E Topock-El Paso Permian basis spread has averaged $4.35, but since the first of the month basis has collapsed to a negative 17 cents. The same is true coming from the San Juan basin. The PG&E Topock-El Paso San Juan (non-Bondad) spread averaged $4.88 between April 1 and June 1, but fell since June 1 to 76 cents.

It’s still a much different story into Southern California Gas where prices at Topock hovered around $8 yesterday. The SoCal Topock-San Juan spread fell this week by about $2.55 compared to the prior two-months but remains at a sizable $6.26 basin-border difference, and the SoCal Topock-Permian spread has been about $5.34 this week down from $8.28 over the past two months.

PG&E’s systemwide OFO in part accounted for the disparity. The OFO for gas day June 7 was called because recent high inventory customer-specific OFOs did not result in improved pipeline system conditions, the utility said. “Rather, we have seen non-targeted customers create significant imbalances.” The Stage 4 OFO has a 2% tolerance and $25/Dth penalties. When PG&E’s system inventory is expected to exceed 4,500 MMcf/d, an OFO is called. The pipe is expecting an inventory of 4,691 MMcf/d today and 5,193 MMcf/d by Saturday. With temperatures around the 65 degree average, there’s a significant lack of demand right now in Northern California.

“Low loads and moderate temperatures have left a lot of gas in the pipe,” said one source. “There’s also a lot of hydro power coming out of the Northwest right now because of a fish flush. It’s just a short-term thing. It’s just that time of the season that Bonneville Power has to push water down the Columbia River and that’s making more power available throughout the region.”

Meanwhile, expectations of a large storage number crushed the rest of the market yesterday. In the afternoon, AGA confirmed the continuing rapid pace of storage injections. At 1,398 Bcf, working gas levels now stand at a 46 Bcf surplus compared to the same time last year and only 1 Bcf less than the five-year average.

“There’s no hot weather on the horizon, and I think everybody was just sitting around this morning waiting for this large AGA number and when that big number hit the market, they beat [futures] down pretty hard. Right now it’s trying to find the path of least resistance. We were expecting 105 Bcf injection but had heard anywhere from 105 to 115 so it was still a bit bigger than what we had thought. Had we not had that one little 99 Bcf number, we would have six weeks of 100+ Bcf injections,” he noted. “Everything looks pretty bearish from here. Gulf cash prices tightened up to the screen basis-wise a little, but still it’s pretty soft out there. There’s gas everywhere. We’re in the 80s in the Gulf Coast; temperatures are mild. There was very little interest by utilities today. It usually rebounds the day after, but without any warm weather forecast, it looks pretty weak.”

A Midwest region trader said Chicago traded about 7 cents over the Henry Hub and ranged from $3.80 to $3.87. “I think the average was about $3.83 for the day. That’s down about 20 cents from the average yesterday. Michigan was trading 6-7 cents over Chicago, but normally trades 12 cents over so it’s coming down faster than Chicago. There’s not much demand and they are seeing record daily deliveries into storage so it’s leaving a lot of gas stranded. I don’t expect any change tomorrow. If anything, the citygates probably will get weaker relative to the fields. Transport variables are not being covered now. They were earlier in the week. The basis spreads were 38 cents and now they are 20 cents so they’ve come down 18 cents, yet there’s still a lot of gas up there.

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