Good Morning,
Lots of mixed signals so we’ll look at the market today by fundamental group, beginning with ….
Markets
Lot’s of big ticks yesterday, surprising because fundamentally there was little to drive this volatility, for now let’s just call it a dysfunctional market.
The market today is lower across all ticks (5 minute) so it appears today may be less dysfunctional than yesterday, but there are lots of hours left so don’t bank on that.
Off $17.00 as it should be, things are weak out there. Also worth pointing out all of the congestion yesterday, prices were all over the map, though today’s market tightened up.
Two nuggets worthy of mention:
- PG&E Citygate posted the biggest rally, up $0.07, which drove the cash spread to Socal Border to $0.47, the highest that spread has traded in October …remember that number.
- Mid-C is awash in hydro and spot gas is getting destroyed, now it is off $0.34 in a week, contrast that with PG&E which is up $0.03. Long the spread is great from a gas perspective, but can this wide spread sustain itself?
This spread is now at a contract high, the market is pricing Nov to average higher than all of Oct. It would seem to us that a more reasonable level would be where the market is currently clearing which is $0.30 to $0.40, not $0.52.
Demand
As the month winds to an end it’s worthwhile to look back at actuals; in the above table we return the realized degree days for Oct 16 versus the ten-year averages. Most cities are way down though Palo realized a very warm Oct.
Loads
Told you it was a mixed bag, two hubs are up, two are down, but that comparison is miss leading because SP was down almost 5000 MWs. NP and MidC are unchanged and Palo, that sun-drenched hub that refuses to relinquish its grasp of summer, was up 700 MW. We also want to point out the anomaly at Palo versus last year, nearly 4000 MW higher this year than last. That sounds bullish but really its bearish, since those 4000 MWs are about to be shed once we get to Nov. In other words, the inevitable Palo pain has just been deferred to Nov.
Weather Forecasts
Three salient points with respect to the Mid-C:
- Hints of significant cooling, though not til days 11 and out – if realized quite bullish
- Drying out over the next two weeks, total precip is below averages.
- Hints of another VERY big storm three weeks out – fear this if it should come to fruition
Just bearish for NP with temperatures (mins) above normal and another inch of rain set to recharge the rivers. Feint hints of cold weather but so far out you can ignore for now.
No “hints” here, it is just downright cold in LA but not cold enough to turn on many heaters, this is just a pure and simple bearish forecast, though the silver lining may be a test of some heating load for Socal Gas, but very little.
Resilient comes to mind, this hub refuses to give up its summer and will sport positive anomalies for most of the next two weeks which will mostly just keep Palo from tanking, not much upside in owning Nov even with these positive anomalies, especially when the sink (SP) stinks.
Hydro
Hub Level Precip Forecasts (10 Day cumulative)
Mid-C is below normal, NP above normal, though we already alluded to that in the Demand section. Worthy of looking at October actuals, we think:
The above data comes from our snow reports and summarizes water year to date precip at a hub level, where the stations in the hub are weighted based on hydro capacity mapped to that station. These are massive anomalies, no doubt about it, but before playing “whack a mole” on Q2 bids it might be worthwhile looking at the same data, but from a snow anomaly perspective:
A tale of a different tale, now the anomaly is below normals everywhere, but look at Mid-C today versus a week ago. The anomaly dropped from a 160% to 50% all because it is too early ,way too early, to make any calls on how this water year will play out. One could be biased, should be biased, towards wet, but just modestly so because there are too many days in front of us and not enough days behind us. That said, you’d have to be slightly bearish Q1 through 3 at this early date.
The epic rains of October 2016 still linger in a few of the Cally rivers, most notably Cherry Creek, Yuba, and the Merced, while the regulated Pit and Shasta are unchanged. With another storm coming this week you should expect more energy from hydro.
The upper Columbia sideflows caught our eye, these are double versus the five-year average, and all flow into Coulee, which is up as well, so is BON. The Pend Oreille is off the charts high which puts further pressure on Coulee and Mid-C prices.
Spill has rallied, though an alert reader pointed out this is Vernita Bar driven, but when did Vernita Bar move above Priest? or move to the lower Columbia?
And most days there has been no spill, in fact the only spill that has happened at Priest occurs when flows get out of hand, like they did two weeks ago during the epic storm …and they are doing that today. Perhaps this is more endemic of the general weakness at Mid-C – just too much water to support prices and Chelan (or is it Powerex) would rather dump the water than try to find bids to whack.
We can’t write about hydro without commenting on the RFC’s 10 Day Forecast, can we?
It is the dream feed blog fodder and we love our friends in Portland. OK, love fest over, the ten turns remarkably bearish over the next five days then solidly bullish in the next five. In other words, it is like tossing up a deck of cards and see where they land. If we were to guess we’d say those cuts next week are restored.
Generation
ISO Outages have pulled back from earlier this week, that is bearish:
Not a lot but not up, though like Palo Demand, you say, this is just a deferral of bullishness for those outages will happen soon, right?
Errr not so fast, cowboy, total gas unit outages in the ISO are ahead of the last three years, not behind. If anything, from an incremental perspective, the status of CA gas units – looking forward – is bearish, not bullish.
Yawn, a couple of hydro turbines that weren’t running anyways and a few rounding-error gas plants. Returning units is equally uninteresting:
Oh no, Broadway 2 and Rock Creek are back, get out of the way, pull your bids, go home …. LOL.
Notable for how low Mid-C is relative to the last three years, burning about half as much gas, which may explain why Stanfield is in the crapper.
This data is pulled from PG&E’s “Pipe Ranger” site and we thought it interesting to note how much lower today’s noms are than the last three years which can only put downward pressure on Citygate’s price.
SP15 Gas Noms
Unlike the Mid-C, which saw big haircuts in total noms, SP15 is actually sporting three year highs. Surprising given the dismal shape of loads and all of the competitive renewables. Yes, this is a surprise, but probably suggests there is only one way for gas noms to go and that is down which may explain the basis beginning to blow out.
Palo Noms
Like PV in that this year’s noms are off the chart, but unlike the hub to the west, Palo’s makes sense given huge positive degree day anomalies, but this too shall pass, though not for a week or two.
The Ansergy forecast for November Mid-C is over the market price-wise but as you can see from the stack it is not that much different in terms of net megawatts. Most important is the hub can take a lot of pain, there is a lot of room to the left before prices fall off a cliff and it won’t take much incremental bullishness to get a spike … but where is that bullishness? Possibly in those cooler days out two weeks.
The market parks Nov more to the left than the forecast, both have a lot of room to either side, this product will be tough to make much money playing either long or short.
Both forecast and market flirt with the precipice but we see little chance of either falling off that cliff, nor do we see much chance of burning through those 3000-5000 mws of capacity to get into that next inflection point to the right. Hard to get excited about SP length, or short, for that matter.
NP15 Stack
Both market and forecast are sitting almost on the same inflection point and it wouldn’t take a lot of net megawatts to smoke NP but doubt that happens. You’d need the biblical rains which could take the hubs hydro from a 15% plant factor to 90%, then maybe you could crush it, but that isn’t in the cards; if anything there is as much upside as down and the odds of seeing up over down are greater.
Conclusions
- Nov
- Palo
- Chart says buy, we agree, and would go long as long as PHX stays above normal, but the finger would be twitching to hit a bid at small profits or a change in fundies and we’re not liking PV3 waiting to come back online …. Nervous Length
- SP15
- Fundamentally there is nothing to like about Nov SP, but the market has agreed, perhaps too much, and now it is just plain cheap …. LONG (albeit a bit nervous)
- Mid-C
- same chart though market has not walked down Mid-C as much, but we still would be long here given the DC returning, some drying out, and renewables relatively weak, and potential for screaming loads. We’d also be quick to convert that PV and SP length over to Mid-C if temps cool .
- DEC
- we’d short it all to hedge the long Nov
- Palo