Good Morning,
We sought hard and long this morning to find something really bullish, really exciting, really relevant … and came up really empty. Not that everything is bearish, it’s not, but nothing jumped out as “OMG, look at that!”. The NWRFC’s 10 day really captured that sentiment best:
Even our buddies in Portland can’t agree on a bias. It is like half their desk is long, the other half is short, and because they couldn’t agree they gave us both sentiments …. all in a 10 day forecast. Cuts in the front (versus last week’s STP) and rallies in the back. Should make for a fun STP later today, and be sure to check back on this report around 10 my time this morning, as this is Friday’s.
Markets
Some excitement yesterday, the ISO flirted with 1K, but mostly it was a lame weekend for volatility and today is starting out the same, maybe weaker:
Spot gas has come off a bit
Socal took the biggest hit, off $0.09, no surprise given that loads fell off a cliff; PG&E dropped the least, down but a penny, but the fact the PG& – Socal spread didn’t drop more was surprising.
Not a lot but up it is, doubt it stays up given what looks to be a rather blase week. Our outlook for November has softened a touch:
Everything is off but Mid-C is off the most and may get whipsawed in today’s STP. Oh, in case you were wondering what the “CalX” hub is, this is a virtual hub comprised of LDWP + IID + TID + BANC, rendering SP and NP now pure ISO.
Hub Review
Palo Verde
This forecast, Phoenix, was one of the few bullish nuggets gleaned from our morning review. The weather grew hotter as compared to Friday’s outlook and temperatures will remain above normal through BOM expiry; in fact, on Saturday the city is projected to post a 96 high, 13 degrees above normal.
Not that loads will soar, they just won’t plummet, yet:
Week on week the hub (APS, SRP, TEC) is up 800 MW on the peak hour and note how much higher this year’s loads are than last year, up nearly 4000 MW. I say note that because that will soon be PV’s new reality once it burns through this week’s heat. Hard to like Palo (beyond this week) given an expected 3k drop in peak loads and the return of the nuke.
But everything is relative and so is love … you can love Palo if it gets cheap enough and it almost is there:
It is indisputably cheaper but not “cheap” and we can’t love Palo any longer, we can only tolerate it and see investing in a go nowhere market makes little sense unless you are trading for the sole purpose of looking busy or you’re bored.
Gas Noms remain bullish for the hub but why wouldn’t they when loads are so much higher than normal:
Total burn, per the interstate pipes, is about double the three-year average, but that just reflects the huge positive degree day anomalies of late, and we know those fall to the wayside shortly.
SP15
Recall last week’s mid 90s and you get the picture of a hub that has run of steam, there is little left to like here as temperatures have travelled from 10-15 degrees above normal to below normal; 8 degrees below normal next Tuesday.
At least the renewables are looking modestly bullish:
Those solar cuts correspond to overcast and possible rainy days, but they are too little to make much of a difference. Outages are helping out a touch:
The Palomar plant is off-line, 575 MW of low heat rate gas, so is a Marlburg unit. Both of those would be running, if they were running, but they aren’t.
Noms remain strong:
Strong as in week on week, but weak when compared to the last three years and about to grow materially weaker as loads drop.
Off 900 MW, week on week, and there is more of that to come; the average on peak loads will fall another 1000 MW before hitting bottom and that will occur either this or next week. Then it is sideways, load-wise, until spring.
Also brace yourself for the return of the DC, that happens this week:
2990 angry price-chasing MWs of capacity ready to pounce on any silly SP pricing… ouch, we hate angry MWs. The market seems to hate them, too:
As it has literally beaten novy SP to a bloody pulp, but we think the hub deserves a few more swift and angry kicks to its groin area.
NP15
The Bay Area refuses to throw in the towel on summer and keeps temps a comfortable mid 70s, just what everyone dreams of for the perfect ambient air temps and the good news is you can realize those just by opening your windows. The temperature trend is downward but that is not bearish, at least after a few weeks it is not bearish:
The hub will shed another 700-1000 aMW of onpeak load but will then recoup all of that in heating load, unlike SP which just sheds. Speaking of shedding, the rivers in CA are shedding discharge as the storm works its way into the Pacific:
But that trend, dropping discharge, is soon to end as the hub will be adding hydro energy, like another 2000-3000 MW over the next few months:
Our forecast projects a winter peak during the first weeks of March but this could happen much sooner, just depends upon the weather gods. They already showed what they are capable of a few weeks back when they dumped 10″ in a few days on Lake Tahoe.
We already posted the outages (see SP); NP now has 1000 MW less of low heat rate gas available to serve its weak demand (Colusa and Lodi); actually, let’s restate that, NP has 641 MW less (Colusa),Lodi is in our CalX hub (NCPA unit). Also the Diablo unit is back which just about offsets Colusa.
And on the subject of “back”, we got more angry MWs heading towards NP via the AC:
1100 incremental and perturbed Mid-C MWs are now poised to slap NP bids, though the line remains far from full, apparently the bids are too weak to generate much excitement.
Mid-Columbia
Lows remain well above normal, which is bearish, except for the fact that when they return to normal loads will rally, and that is bullish. What isn’t bullish is the wet trend the hub is in, of late. It’s not biblical wet but it is wetter than normals:
The whole WECC is wet with four of the six hubs above normal and MidC about 30% higher than average. It is also telling that every day gets some precip, this isn’t a 1-2 day storm, it’s just relentless northwest rain. We already suggested ground saturation has been realized so most new rain goes to the rivers.
Those rivers have backed off some, much of the precip has been captured in the reservoirs:
Every reservoir but Lake Pend Oreille is up versus two, or one, weeks ago. That is reflected in the River Forecast Center’s water supply outlook:
The Coulee Jan-Jul is a robust 109%, remarkable they would project such a high anomaly given that 95% of the snow season is in front of us. We are seeing something similar in the raw NRCS data but because it is so early these anomalies are not weighted very high:
Snow Anomalies – Realized
The precip has been monstrous but the snow much less so, though much of the snow has fallen above Coulee.
That Mid-C index is weighted by “Cumulative Downstream MWs” meaning basins above Coulee are weighted higher than those downstream. Point of all this is that the northwest is above normal and that fact should not be discsounted when considering positions (hedging or speculative) in Q1-3. We have always believed you want to be bias in the opposite direction to the anomaly when trading Mid_C; if the anomaly is positive (and it is) you’d want to be biased short. Of course, that general rule is subject to market prices and trends in cash which is why we would still stay long the Q2 Mid-C, despite these current snow and reservoir anomalies which should suggest otherwise.
The market, and the forecast, have battered Q2 into cheap and, given that it is still October we can ignore these positive water anomalies. Plus there are too many bullish factors at play for Mid-C today, led by the return of the DC, current warm weather, and the hangover effect of the October Storm.
Like Q2, November has been battered and now it sits at parity with the forecast …and we would buy here.
Conclusions
- BOM – not worth trading, it is BOW now
- NOV
- Palo – it is cheap and cash will support prices this week … but wtih the return of the nuke and an inevitable crash in demand …short
- SP – it is cheap and cash won’t support prices this week … short and not nervous
- Mid-C – watching water but will stay long
- Q2
- Mid-C – staying long off of cheap and hoping weather goes dry, which it isn’t, though the 11-20 is below normal today.