Good Morning,
Today’s Subject was easy to pick, it’s colder today than yesterday and colder than Wednesday:
The cold is seeping into California in the latest forecasts and is also moving west, highly unusual and is setup by the high-pressure system in the Gulf of Alaska and the low in the south:
The Northwest doesn’t see this kind of event very often, usually that blocking high just pushes the cold to where it belongs, Chicago, but the counter-clockwise low in Texas is shoving the cold to the west – cool stuff, huh?
Energy is relative, so just to keep this even in perspective, we pulled out the Dec 10, 6-10 day; that was the season’s coldest so far. In the current 6-10, the event extrudes further west and south, but the east is warmer, bearish for gas (Nymex).
Spot gas remains robust:
Especially at PG&E as that premium hub flirts with the four handle … who’d a thunk? This current weather should tighten basis as the east is just not that cold.
Natty opened weakly, but was rallying:
All in all, setting up for a good 2017 …if you’re long. We still think there are some short ops out there but given the market’s tendency to bid everything up, then pound everything down, short with caution…and you better do it with heat rates, or at least with a chunk of the gas hedged.
Demand
Let’s start with loads, mainly to get them out of the way.
2017 is going to be the “Year of the Dashboards”; we love these as they make blogging a lot easier – and they should make using Ansergy easier too. For the record, all the dashboards I use are on your accounts under “Ansergy Dashboards” – same with Bookmarks. Garett will be reaching out to everyone to offer up a quick online tutorial on how to use these.
So what’s in loads worth talking about? Nothing. They are sideways and off from the Dec 10 highs, but that too shall pass….
We typically turn off Min/Max as it distorts the plot’s Y axis but not today – all have the Min activated (gray line) and the axis mostly didn’t change. Call that bullish. Two or more points here:
- Temperatures are colder than yesterday or Wednesday
- the Cold lasts longer and now is trickling into the weekend
- Climo is starting to rally; not that we can’t get colder in Feb (anyone old enough to remember Feb 89?)
Even the Golden State shall flirt with ten-year lows, plus it has hints of Week Two cold, but the big news will be next week and whatever fat the system has today will get partially burned up next week rendering BOM and Feb that much more bullish.
For lack of a better term, we are calling the rest of the US WECC the “Interior.” It’s cold but relatively less cold than the Northwest, but nowhere in the WECC (Canada included) will be bearish (well, maybe San Diego) and that is what you want to get the ISO jumping.
Hydro
The rain on the cold parade, as usual, is the northwest’s pesky 33,000 MW of hydro capacity. That venerable system is poised to crush any irrationally exuberant prices but after several weeks of crushing it may be growing constrained. BPA is drafting its treaty water and filling Coulee in anticipation of new system highs (demand) everywhere. All should be good unless this cold lingers into week two, then ugly might become the operative word. We wouldn’t risk our 2016 bonus by being short anywhere closer than April.
Flows at Birchbank are basically off the charts, now more than a 100kcfs, but the province has the bullets, its reservoirs are still robust. BPA is using that water to fill Coulee:
Up two feet and should add another foot over the weekend, it will need it with the cold.
BPA is also drafting at Libby which is contributing about 20k to GCL’s inflows. But all is not so rosy in the land of hydro; natural river flows are barely flowing:
Most of the indexes are at five-year lows and after next week they probably all will be at those lows. Basically, BPA is burning up its storage to meet demand. It has the bullets, so it is doing the right thing, but what happens when the next cold front hits, and the one after? Not much, what we are seeing is just a very early flood control draft which means less water in Feb and March, perhaps April, but we doubt that. We think most of this water going through the turbines today and next week would have been Feb-Mar water.
That leads us to our next topic – Water Supply. The first two weeks of Jan are perhaps the most exciting times in a water year as the Corps of Engineers release their initial flood control requirements. Let’s look at that water supply:
The RFC has progressively walked its forecast down to reality, congrats! Now both Ansergy and the RFC are in agreement; WY17 is just slightly below normal, but with next to zero precip in the ten day, and more drafting, we are pretty sure this number is going to drop; our guess is we see a 95% of normal used in that Jan FC release.
You can call the above The Dalles, if you prefer, we call our lower Columbia station “Lower Columbia,” but it’s the same. What isn’t the same is the massive hair cut the RFC has given to its Jan-July TDA outlook. This chart is more volatile than the Natty graph, LOL. We doubt that a 5% drop came from melting snow – too cold for that; and find it hard to believe that a dry 10-day outlook could pull down an 180-day forecast that much. The conspiracist in us would say that BPA doesn’t want to be forced into a draft and wants a low number – but hey, they wouldn’t do that, would they?
Some of that TDA haircut is coming out of the Snake system; the RFC has pounded IHR down 7% in just three days. No explanation, it just is what it is.
TransGen
No gen updates, the ISO has no new outages and no new returns. Al the nukes are running, and by Tuesday all the gas units will be running, too.
The AC and DC are flowing similar to what they’ve been doing all week so no point in showing the plots; we do think that we’ll see massive pull-backs in exports to California beginning on Monday, maybe even on Sunday.
Powerex pounded the Mid-C yesterday, approaching their highs (for exports). Makes sense, BPA is pulling all that water, it is going through Arrow’s penstocks, why not send the electrons to the Yanks, too?
Flows out of ZP are all going north though last time it got cold we saw these flows collapse, we’ll be watching next week to see if the same happens.
Conclusions
- Mid-C
- Jan/Bom – it would be suicide to short this, we think, and we’ll stay long
- Feb – it gapped up, mostly off of gas, but all of this water being burned in Jan was previously destined for Feb-Mar, now its gone. Plus the weather trend is cold, and until that breaks, we fear Feb … LONG
- Mar – As the RFC walks down its water supply it also reduces the chances of seeing any drum gate work on Coulee. Whenever we see March water consumed in Jan, we have to like March, despite the rally … LONG
- Q2 – this one gets tricky, WY17 is not a dry year by any stretch, we think its wetter than the RFC thinks it is, and all of that snow will melt, that we can guarantee; just a question of when? Well, we can also guarantee it will start melting in Q2, and most likely be done melting in Q2, and at some point, Q2 will trade in single digits, and everyone will hate it and look back at the Dec 30 Q2 chart and say “Why didn’t I short it on that day?” There, that is the short case; the long case is that the trend can be your friend and the market is dumb (some of the time), and if things get really ugly next week Q2 is going to be bid up. That said, we already have the big length on in the Q1…….SHORT
- The market has jacked the Q2’s heat rate 700 btu in the last couple of days (Q2 relative to Q1); we think that is crazy, this Jan water being burned was Feb-Mar water, not Apr-June.
- Other Hubs – nada, just care about the MidC atm.