Now that winter is over, most experts would have trouble ruling out the possibility of a test of market lows. But that clearly wasn’t happening in the cash market on Monday. Despite mild weather, high line pack on many pipes and weaker crude oil fundamentals, most points were up a nickle to as much as 15 cents.
“Blame it on storage buying, storage buying and more storage buying, along with a little power generation demand because we saw some nukes go out in NEPOOL,” said a New England marketer. “We saw some pretty good power generation demand after Millstone was taken down Sunday.”
Dominion Nuclear shut down Millstone Unit 3, a 1,137 MW pressurized water reactor, after sending out an emergency alert at about 9 a.m. EDT Sunday because of indications of low steam pressure in the unit’s secondary piping system. Dominion said the unit will remain shut down during an investigation. No decision has been made on when it will be restarted. Millstone Unit 2, an 871 MW unit, is being refueled and is not operating. Millstone Unit 1 is being decommissioned.
The Millstone unit was among six nuclear units nationwide that were at or near full operation on Sunday but then went to zero output on Monday (see NGI’s NRC Power Reactor Status Report). Also shut down were Progress Energy’s Brunswick 1 unit (820 MW) in North Carolina, Exelon’s 1,116 MW Braidwood 2 unit in Joilet, IL, Nuclear Management Co.’s 524 MW Prairie Island 2 unit in Minneapolis, SoCal Edison’s 1,070 MW San Onofre 2 unit in San Clemente, CA, and Entergy’s 1,075 MW Waterford 3 unit near New Orleans. In total, there was about 23,762 MW of nuclear generation offline on Monday, leaving open the possibility of gas-fired units being dispatched.
However, temperatures are mild. Except for the Pacific Coast and the Pacific Northwest, where temperatures continued to be cool on Monday, the rest of the nation enjoyed highs in the upper 60s and 70s. Night time lows are expected to hold well above normal across the midsection of the U.S. Meanwhile, the latest six- to 10-day forecast calls for the eastern two-thirds of the country to have below-normal temperatures. The Pacific Northwest is the only section of the country expected to have above normal temperatures.
The real story behind the market’s strength on Monday in the face of multiple bearish fundamentals was the buying incentive built into the forward price curve. “Look at that forward curve,” said the Northeast marketer. “There’s very nice contango going on right now and that’s what’s really driving the price.”
There’s about $1.30 built into prices between the May 2005 contract and the January 2006 contract, which averages out to about 16 cents/month. That’s more than adequate to cover storage costs.
Until that incentive goes away, there’s likely to be substantial market support. “As long as the risk of storing gas for next winter can be eliminated and there’s adequate access to storage space, there should be buyers a plenty,” the Northeast marketer said.
The wild card will be the price of crude oil, and that took a bearish turn Monday, dipping below $50/bbl again to a low of $49.85 and settling at $50.37, down 12 cents/bbl. Gas futures ended the day down 4.7 cents to $6.95.
“You tell me what crude oil is going to do and I can tell you what’s going to happen this summer with natural gas,” said a Canadian producer. “It’s highly unlikely their directions will diverge by much. If crude holds $50/bbl, I think we will start moving back up. Personally I think it is going to break out to the downside. If crude gets to $48 that should bring us another 40 cents down. Come bidweek, I think we’ll be a lot lower than we are here now. But I think we’ll find support at $6.50 [in May futures]. That will make the storage play all the more attractive.”
He said Chicago basis tightened somewhat on Monday but remained “pretty lousy,” trading around minus 15 cents for the rest of the month. In the daily market, Chicago basis has been about 20-25 cents back. Basis for next month was minus 4 cents at Chicago Monday, so it’s gaining strength.
Northeast basis started the day weak at plus 40-cents, but then got stronger as the day wore on, said a regional buyer. “It’s supposed to be warmer tomorrow and Wednesday in parts of the Northeast and that’s bringing out some generation demand. With some nukes down, high temperatures in the low to mid 80s for the first time this year and the storage buying, I think basis should remain relatively strong,” he said.
Â©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |