Cash prices at most points outside California and the Rockies dropped a dime or so yesterday in response to light demand, mild temperatures and high storage levels during a relatively quiet trading session. But western points continued to lose ground in chunks, with SoCal-Topock falling into the mid-$5.00s, and Rockies prices fast approaching $2.

High storage and pipeline inventories and weak demand are taking their toll on prices. PG&E barely avoided calling another OFO because of high inventories on its system, and now SoCalGas may be in the same boat.

“All the nukes are up now, and each day it seems like more generation demand comes off and more supply becomes available,” said one California marketer. “I wouldn’t be surprised to see a SoCal high-inventory OFO soon. Receipts on the SoCal system far exceed injection capacity. Today they cut IT storage injections, and when that happens you know that an OFO can’t be far behind. If the OFO happens, we may see $3.00 border numbers this weekend. We haven’t seen that in quite a while.”

The SoCal Border basis market is “extremely weak,” he said, with July now trading at +2.30. SoCal Topock prices dropped all the way into the $5.20s yesterday, down about $4 from Monday’s levels.

Prices into PG&E were basically flat. “Based on their forecasts, it looked like the need for an OFO was sort of right on the edge,” a trader said, “and I guess they decided not to call one.” However, PG&E is expecting a continuing high inventory situation going forward with the strong potential for an OFO over the weekend. PG&E Topock numbers were hovering around $3.10, compared to $3.08 on Wednesday. “We saw it dip lower toward the end,” said western marketer. “We saw it get below $3, but I can’t imagine much getting done there. It’s hardly working as it is. Opal was well below $2.50 today. San Juan dipped to $2.50 from $2.80-85.”

Some offers in the Rockies were reported at less than $2. “We got some Opal at that $2.02, which is pretty low,” said a Rockies marketer.”On EnronOnline it was showing a bid at $1.99 and an offer at $2.02. I don’t know if anything got done at $1.99 or not. At the end, I think people were getting stuck with gas that they did not sell off early, and then everything started to crater.”

Rockies prices fell more than 30 cents at many points partly in response to PG&E maintenance at the Daggett receipt point. PG&E reported that Daggett will be shut down for 20 days starting June 10, reducing flows from the Rockies into PG&E by 300 MMcf/d (see Transportation Notes).

The big story in the Northeast market and in most other delivered markets was that delivered prices were not covering variable costs. At Transco Z6, for example, delivered prices in the high 3.90s barely covered the 24-cent fuel plus commodity charge required to move gas from Station 65 where prices were averaging in the low $3.70s.

“You usually see that on Tetco in the summer, but it is rare to see the spread between Station 65 and Z6 NY duck below the variable cost of transport on Transco,” a Gulf trader said. Gulf prices fell between a nickel and a dime.

“There’s not enough demand to keep prices up. This sure must be helping the economy,” the trader remarked.

The Northeast is trading plus 28 cents, said a Northeast marketer. “It’s really been ugly lately. You look at front-month basis and it’s down below that. I wouldn’t want to own it right here. Chicago has not done too bad, compared to where it had been. It’s probably trading 8 cents to almost a dime over the hub right now.”

One Midwest energy manager is convinced that now is the time to lock in fixed prices for the summer and next winter. “I’ve had a few producers calling, asking me to do some term business. I’m seeing a lot of sellers out there trying to do stuff for the summer. A lot of people are bearish right now, but they tried to spank the Nymex today and get down to that $3.65, and every time they would bring it down, someone would bring it back up, until right at the end. I think we’re getting near the bottom. I think it’s a good time to buy either some fixed-price strips or some index strips right now. At these prices, you have California basis coming off; basis everywhere is about as cheap as it’s going to get. And we haven’t had the heat yet. It’s a good time to lock in basis and get long. I think we are starting to see people getting long at these prices. We could see some short covering soon, which may create a rally. With prices where they are, a lot of the demand that was off should be coming back, and there is some new generation out there that will put incremental load in the market.”

He claimed some producers were even considering shutting in production to do maintenance at these prices. “Much like the electric generators who have put off maintenance, the producers have wells and equipment that need to be worked over, and now is about as good a time as any — like the electric plants that ran so long and so hard without any maintenance. At $10 you’re damn right you aren’t going to shut that wellhead, but at $3, yeah you’ll shut in for a few days.”

©Copyright 2001 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.