Good Morning,
It’s still ugly, we think, but everything is about price. The price of gas is ugly, that’s for sure:
The previous low in November coincided with the election Trump, then euphoria in all things energy set in followed by the realization that easing environmental regulations is bearish on price and now the Nymex is approaching its lows of last year. Coal miners should be protesting for more fracking regulations, not less if they want to keep their jobs. At these gas price levels, it’s difficult for any coal power plant to operate.
Heat rates, the spot that is, are ugly, too:
Contrast the D1 (Yesterday) versus last year when there wasn’t much that was bullish aside from very low gas prices. This year there isn’t any cheap gas premium baked into the heat rates, these current spot heat rates reflect the reality of massive hydro production in California and even in the Northwest. Is there respite in the future? Not in the immediate future, even with the Northwest and California drying; it’s a WYSIWYG world, what you see is what you get, and when the Northwest finally warms up you’ll get a lot more than you see today.
Demand
Let’s get the good news out of the way – loads are up at the Mid-C. Temperatures in the load centers are cool; it even snowed a bit in Bellevue yesterday.
Portland dipped below freezing yesterday but nothing is cold, just chilly, and in a week it won’t even be that.
Average temperatures climb every day in every city, and this week most are below those normals, but next week several stations return to normal. That means lower loads but more important, faster melt. Compare snow cover from a month ago to today:
Jan 17, 2017
Feb 17, 2017
Most of the low-level snow in the Upper (and mid) Snake has melted but little in the Mid and Upper Columbia. More on that in the hydro section, it’s mentioned here as this variable is a function of ambient air temperature and that is cool, for now.
California warms up next week which just means less off-peak load; it doesn’t warm up enough to drive many home owners to turn on their air conditioners. Instead they’ll just open their windows and enjoy Mother Nature’s free HVAC.
Cool this week, warmer next week. AZ might get some AC load, the rest of the interior will realize load loss. It’s ugly, and we sound like a broken record but the record player is not broken, it’s just the same ugly song over and over.
Hydro
We’ll lead with the northwest’s Corps of Engineer plants because you already know California is flooding; it’s been flooding in the Golden State for the last two months. I wonder if anyone has asked why there wasn’t a more aggressive draft in early January; there were many days the Pit wasn’t even operating at hydraulic capacity and now it’s pouring water over its spill gates. We digress.
Coulee discharge is flat, rarely do you see so little shaping at that project, which his bearish for light load. The on peak discharge is the same as the off peak because BPA want’s to keep gas on the margin, at least for the ON, and has already thrown in the Off-Peak towel. Flows on the Lower Columbia are off the charts high primarily because the Snake started its runoff. Note the other three big storage projects: LIB, HGH, and DWR. These are all at minimum flows.
Flows at Arrow are like those three USA projects, operating at minimums. This is the great game BPA is playing – drafting Coulee to 1255′ by Mid-March and still keep gas on the margin. They are masters at that, and we think they may yet pull it off thanks to this week’s cold weather. Check out the Side Flow Index on the Mid-C rivers – barely registers, no runoff has started on those, yet.
Also, note the Spokane continues to build, now it’s at 19kcfs. Contrast that river with the Pend Oreille, which is a little higher elevation and can be regulated with Lake Pend Oreille; that river is flowing almost the same as the Spokane and is a statistic you won’t see very often. Now compare the Clearwater and Salmon to the Snake at Weiser. Neither river has moved while the flows on the Middle Snake have quadrupled in the last month. Those two rivers can contribute 100 kcfs inflows to the Lower Snake when they are ready to, they just aren’t warm enough, yet.
BPA is lucking out on the most recent precipitation forecast, too. Most of the storms that were in the forecast the last week have been removed; the Mid-C is staring at a very dry 21 days forecast. Not that dry matters as much in early March as it does in January, but still there won’t be builds, yet it remains a very big snow year as compared to the last ten or so.
The entire WECC is normal or above, and the MidC’s water supply outlook is way bigger than the current Flood Control drafts suggest. We still think there will be deeper drafts post Mid-March. If there isn’t a bigger draft, we’d suggest that May-June, perhaps July, would bear the brunt of the non-draft.
Californians should be pleased to see that their state goes dry after it works itself through this weekend’s storm. We’ll believe that when we see it; these Pineapple Express’s are popping up in the 6-10 day without much warning so wouldn’t be surprised to see another one arise.
TransGen
Returned units:
New Outages
A lot more new units came offline versus what returned. The ISO is now poised to begin its Spring maintenance and looks like it has already started.
Almost every hub saw more power plant gas nominations, driven off the cooling weather. That too shall pass once the cold passes.
The price on HE13 was so ugly yesterday the Northwest kept its energy; ZP exported at near capacity into NP and BC returned to some selling. Tomorrow should be even uglier on the AC:
The line is now rated at a miserly 1150 for the 24th.
Conclusions
- Feb
- Scary charts, everywhere except Mid-C took a deeper dive. Our MIdC forecast is now below the market, and we are going to puke out our length there
- MidC – Short
- SP – we’ll buy it and call it a spread
- Call it a free look, a free option; MidC is going nowhere, so probably is SP, but the spread is so cheap you can’t afford not to own it
- Scary charts, everywhere except Mid-C took a deeper dive. Our MIdC forecast is now below the market, and we are going to puke out our length there
- Mar – April
- We don’t like the MidC, we fear warm weather here, and the market has made it easy to own the spreads – we’ll own all of them.