While the rest of the country resumed the softening trendyesterday with price drops of 40-50 cents, California returned tothe stratosphere with increases from weekend levels approaching $5and averages hovering around $19-$20/MMBtu.

The potential for more stringent balancing requirements onSouthern California Gas Co.’s system took most of the blame.SoCalGas’ storage levels continue to fall under pressure from coldweather, which is expected to continue straining supplies, and highgeneration load. The utility’s 90% daily balancing requirementcould kick in soon if storage drops below key threshold levels thatdecline each day this month. SoCal has warned customers that 90%balancing could be required on Thursday. Once triggered, thesituation would require SoCal’s non-core customers to deliver 90%of their daily burn requirements or face penalties of 150% of thehighest SoCal border index published in NGI.

“We sold border for the weekend at $15.50, then the Nymex cameoff and cash was weak everywhere else this morning, but the bordershot up to $19-$20,” said one marketer. “The rest of the month atthe border is trading $19-$20 so there’s much more strength. It’sgone up more than $3 since lunchtime.

“It’s also fairly chilly out there. And with Reliant and allthose guys agreeing to continue to generate power and sell into themarket and take on the risk, all the power plants are stillrunning,” he added.

Prices in the western supply basins were down sharply, however,he said. “We traded as low as $5.50 in the Permian and $5.35 in theSan Juan so they are down almost a buck from Friday.” The range was$5.50-$6.15 or so in the Permian and $5.40 to $6.05 in the San Juanwith averages around $5.70 and $5.60, respectively.

“Cash everywhere else is weaker. There’s not much load. Theborder also has the benefit of Palo Verde trading at $200/MWh. Whenit got to $19 and $6.50 above the index, we got out, but it’spossible if the weather stays normal to below normal and they have90% flows we might see those stupid numbers we saw back in Decemberagain.”

The National Weather Services’ six- to 10-day forecasts looksbullish for the West with below normal temperatures in theforecast. The Midcontinent and Gulf Coast, which experienced 40-60cent price drops yesterday, are expected to get above normaltemperatures. The rest of the country is headed for normal or, inthe case of the Northeast, below normal temperatures.

The Northeast market was off sharply following the dip in Accesstrading Sunday night, said one utility buyer. “Tetco M3 is around$6.17 [from $6.58 on Friday], but it hit the $6.00 level thismorning and moved up as trading continued. I think they areexpecting another cold day tomorrow before we get a warm front inon Wednesday. I think we’ll see prices down again tomorrow.”

Although Henry Hub prices were off 40 cents or so on the day,they closed in on Nymex futures. The hub had been trading as muchas 15 or 20 cents behind futures last week but anyone in theproducing region with storage grabbed an opportunity to lock inMarch spreads.

Fuel switching has taken its toll on demand and the market mayhave to wait until April before a significant amount of demandreturns, said one Gulf region trader. “I would put it anywhere from7 to 8 Bcf/d. A lot of people have around a $5.50 to $5.70threshold to shut in their plants. The only way they are able tosecure that price right now is to buy the April-October strip so Iexpect some load to come back on April 1.” He noted that manygenerators are running low on their oil burn permits. “They’ve beenburning oil all this year so far so they are looking at anyopportunity to preserve some of their burn days in case the summerpeaking leads to real high prices.”

Elsewhere demand also was off and utilities were turning backsupply. “I lost just about all of my utility load I had beenserving in the Ship Channel,” said one Texas marketer. “I stuck mygas into storage, 32,000 MMBtu into Moss Bluff at $5.60 at the ShipChannel. HL&P hasn’t bought gas from me in about 10 days; theyhaven’t needed it.”

Another marketer said his parked gas at NiGas in Chicago wasquickly returned to him yesterday. “They had no problem letting mehave it back this morning. I think they have plenty. I’m not havingany trouble buying gas in the upper Midwest. Chicago was tradingaround $5.93, which is down 40-45 cents from Friday. We bought gasat Dawn this morning at $5.96. That certainly tells you that youcan’t move much Alliance gas to Chicago because it has nowhere togo. The variables will kill you going to Dawn. NGPL Midcontinentheld ground at $5.55. We’re down from first-of-the-month indexes 50cents or so.”

©Copyright 2001 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.