Good Morning,
We are seeing some cooling, some might call it cold, and we are also seeing a lot of rain heading towards both NP and SP, so this is a mixed bag of news, some is bullish, some is bearish, but the overall taint of it all appears more bullish than bearish. Mainly because most of the coming precip arrives as snow which merely means the bearishness is deferred to a later period.
We are also seeing California core gas demand starting to rally into winter and with weather turning even cooler we’ll see even more heating demand:
Both gas hubs are poised to see significant increases in heating load over the next couple of weeks, though the east coast doesn’t show much signs of cold, we don’t see Nymex falling off a cliff this week. Before leaving gas we wanted to point out a collapsing spread, a reversion to the mean, one we pointed out a few months ago as a short candidate:
Back in early October the Mar-Feb spread was -$0.34, today it is -$0.18, nearly a double and probably has a bit more room to collapse. If the PUC flips the Aliso switch it has a lot more tightening in store.
The first plot was yesterday’s 8-14 day, the second was last week’s – huge cooling in the west and at least the east is normal, not massively warm. Call it a cooling trend and call it short-term bullish, we’re almost excited, and is coming just in time too, markets are very weak everywhere, but in the north.
The only hub to post a spot rally was Mid-C, and both its on and off peaks rallied week on week, while all the other hubs came off, despite significantly higher gas prices, resulting in lower heat rates everywhere but the Mid-C:
The Day-Ahead LMP’s are a trainwreck:
See, off $35.00 week on week for the peak hour, that is a train station wreck. Today’s market is worth a closer look:
Palo has been paying a steep price to sell into the ISO, now SP is paying massive congestion as well, but look how tight Mid-C is to NP, the hub is tightening up as the slop from the Oct rains is either parked in the reservoirs or is bobbing in the Pacific, plus loads are picking up in the north.
Demand
Hourly Actual Demand – MidC (13 BAs)
Interesting chart, loads are up 1000 MW, week on week, but off 3000 MW from last year (yesterday). With weather turning cooler we think that 3000 MW gap will disappear by the start of Dec deliveries.
Mid-C Composite Temperature Forecast
This cool weather around the end of the month has been resilient, it has stayed in the forecast for almost every day over the last week, and now there are signs of another cooling in the 11-15. Offsetting that cold weather is an abundance of precip heading towards the northwest, though the impact of these storms on cash will be minimal as most of the volume will stay in the mountains as snow – call that bearish for a later period. More on this in the hydro section.
Before leaving MidC let’s take a look at Kalispell:
Those are teens, teeny teens like 10-11 degree lows. Not unusual for western Montana but cold nonetheless, and note the extreme anomalies at the tail end of this forecast – nearly ten degrees below normal, perhaps this spills westward? Definitely shaping up for the first cold snap of the season.
NP15 is also seeing a slight uptick in loads:
Just 300 MW, but up is bigger than down, even if it is just 300 MW, and with a cool outlook we might see more rallies over the next week:
NP15 Composite Temperature Forecast (Mins)
And like the northwest there is also an uptick in precipitation, but nothing like with will be seen at Mid_C. Also note that most of this precip will fall as snow – Lake Tahoe accounts for most of it:
Skiing should be epic in the Sierras where 1.44″ of snow water equivalent is scheduled to fall, and note that not much ends up in the lowlands, barely a half inch. All of which means the California rivers won’t budge, just total snowpack will increase. We think this NP outlook is positve for length, especially given the low prices.
Palo and SP15 both realized decreases in week on week peak loads:
Palo is off 600 MW but note the anomaly with last year – there isn’t one, suggesting the hub has hit its bottom and its only rose petals and champagne from here on out, at least load-wise. Generation-wise its not looking quite so rosy, most of the major gas plants in the hub have backed off, they don’t like the prices, all of which suggests that any hints of a rally in the hub will be squashed by 3000 MW of 7500 heat rate trying to find a bid:
We struggle to find a reason to own Palo and, consequently, probably shouldn’t touch it from the long side, even though the temperatures are poised to continue their plunge, but the final determinant is not always fundamentals, a cheap enough price can turn the most ardent bear to a bull, or at least is should:
Recall that Palo has been 10 degrees above normal for about six weeks, now it is facing about the same anomaly – but below normal. This is bullish and may be that reason to own it, or not.
Or not, maybe the hub sees another 1000 MW peak rally, but on average it is poised to bank about 500 aMW between now and the peak, barely enough to register, and remember, there is 2000-3000 MW of cheap gas units waiting for this load rally. We see no signs of life at Palo, unless it is too cheap to meter.
SP15 realized an even bigger drop in loads:
At least the hub is back to normal which suggest the load decay is winding down.
And it is, the bottom has been touched, loads only drift up, not much, but they aren’t going down from here until spring.
Temperatures are mostly normal, aside from a brief (one day) drop on the 30th; loads at SP are going nowhere suggesting that Dec NP:SP spread might look tempting, or maybe sell the SP:PV dec? Definitely going to look at shorting the Dec SP:MC.
Hydro
Just as we got all bothered and hot over cooling weather the feds slap another 1500 aMW into the end of the month:
This suggests today’s STP will be bearish for its Dec outlook which should curb our enthusiasm for Mid-C length, but even with the incremental hydro energy the hub will remain net positive (demand-wise) and we don’t think their changes are valid – way too much water. Bear in mind they already put 1500 aMW into this same period in last week’s STP:
Now another 1500 aMW? We don’t think so, even with the 1.44″ of precip heading towards Mid-C; most of that volume will be stuck in the mountains as snow. Unless BPA is planning on pulling reservoirs down, we just don’t see where this additional water is going to come from. Speaking of reservoirs, there is room to pull:
Three projects have seen material increases, week on week: Arrow, Dworshak, and Brownlee. Libby, though, has pulled three feet over the last week and Coulee has been mildly drafting:
Interesting to note, while the project’s reservoir was pulled nearly a foot, outflows were relatively unchanged meaning inflows are backing off, despite decent recent rain:
Spokane added over an inch in the last week; Kalispell a half inch. We won’t dwell on the 3 inches at Seattle, they don’t count. Point being river flows did not surge because most of that rain was snow:
Yet most basins remain well below normal. Even with this week’s storms those basins will be below normal which brings us back to the 1500 aMW bump in Nov 30 hydro energy, per the RWC. We just don’t see it. While on the RWC subject, let’s check out their water supply outlook:
Whoa, up 3% at Coulee and 2% at TDA, all off of a minor snow storm, and all the while every basin in the northwest is well below normal. Our internal forecasts are all below normal, not way below, but around 97-99% of normal.
Generation
Outages in the ISO are falling, like their loads:
Total outages are off 2000 MW from two weeks ago and two weeks ago loads were 5000 MW higher. Not many new units came off over the weekend:
But a lot returned:
We are surprised more maintenance is not underway, given the weak prices, and perhaps we’ll see a surge in units coming off over the holiday weekend, but doubt it. Outages are ahead of last year and maybe a 1000 MW behind the four-year average.
Wind energy in SP is nearly non-existent:
Call that bullish and calling the declining daylight hours bullish, that trend continues for another month. BA generation in Palo is off year on year at pretty much every BA:
Tucson is off the most, nearly 500 aMW behind last year. The Mid_C generation (by BA) is mostly off week on week as well:
BPA is off nearly 2000 aMW, Puget down 400, while Idaho Power is up 300 and in line with last year.
Transmission
We noted a minor AC uprate today:
Just ten hours tomorrow, but 1100 MW of more export capacity. BC is back to exporting:
Yesterday’s average export to Mid-C was 925 aMW versus a weekly average of 775 aMW; clearly they like the prices (relatively like) because it’s not because they are finding themselves any longer than they were. Their run of the river plants are all off over the last week, take the Slocan as a case in point:
They aren’t selling because they are longer, they are selling because they like the price and will like the price even more over the next few weeks. On the surface big exports into the Mid_C is bearish, but from an incremental perspective it’s not. Maybe they sell another 1000 aMW, but more likey 500 aMW, once the weather gets colder which doesn’t come close to off-setting the expected demand rally.
The AC loading has rallied of late, probably just a pass-through of the bump from the northern intertie. Interesting that the DC has fallen off:
Blame that on the weak SP prices.
Conclusions
- BOM – it is about over but we’ll take a position and let it settle out against the indexes. Before looking at the trades let’s examine how the market settled on Friday:
The BOM was battered despite an increase in spot gas- Mid-C
- We are going to buy back all of our bom shorts and go long despite the RFC’s attempt at destroying bom upside at MidC. We like fading the Friday sell-off and like the cooling weather. Those trends, cooling (or heating) can accelearte as the event approaches; should that happen, should temperatuers slide even more to the cooler side, there won’t be a chance to buy this, the price will gap, so we are going to buy it today and be …… LONG
- NP
- I like the chart, both the forecast and market are ticking up, weather is turning colder, the AC is about as full as it will get … we are going LONG
- SP
- Parity, the forecast and market, and since we are long in the north we’ll be short here, but not in an equal amount … more like 3:1 long ….. SHORT
- Palo
- We like the forecast move and love the market selloff given our short position, but pigs become bacon and we aren’t interested in a slaughtering and we’ll buy back our shorts and go ….. LONG
- Dec
- Market vs Forecast
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- The market liked Dec on Friday ,we like that they liked it, we were long, but now that the rest of the pack likes what we liked when before they didn’t like it ,we like it less, but still like the cold weather that is coming, so we’ll be a monkey and like what everyone else is just starting to like…………
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- Mid_C
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- Great chart for length, we concur, despite the RFC toying with us, we’ll stick to our fundamentals and be ….. Still Long
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- SP15
- Market loves the SP Dec, it can have it. We are going to short the spread and be …………………SHORT
- Palo
- Looks like the Mid-C chart, but without the fundamental upside; since we already have a north:south on we’ll ignore PV dec ….. FLAT
- Market vs Forecast
- Jan
- Market is bidding this up, which we would concur with given a potential cash rally driven off of cold weather, but since we already went long the bom we don’t see a reason to double down without more certainty that it will get cold. IF we see that real cold weather we’ll buy everything, but for now we’ll play the weather off of bom and dec.
- Q2 & 3
- We are confident of one fact – snow pack is building in both the Mid_C and California; we have always been a believer that you trade the water year in slow motion. Each set of dry days/weeks you get a touch longer; each set of wet days/weeks you get a shade shorter. Now we see snow pack building, we are going to get shades shorter north and hedge it with south length
- Going long both the Q2 & Q3 spreads, just a piece, but long in front of the new snow. For the record, we prefer the Q3 length over the Q2, but doing both.