Thursday Fundamentals

Posted on by William Griswold

 

Good Morning,

The Socal Gas drama continues to play out; spot gas shows a $6.00 handle:

Crazy. Contrast SCG with PG&E Citygate, clearing at a modest $2.97 which is just $0.18 over Stanfield. What is most interesting, more than the tight PCG-Stanfield spread, is the spread against Socal Border which cleared over PG&E. And we thought the issue was getting gas into LA. Something must be terribly wrong in Socal. Let’s look closer at those fundamentals:

Call this the Socal Gas “L&R,” or for those that hate acronyms, Socal Gas’s Loads and Resources. In this view, we are comparing current values (today) vs. last year, two years ago, and three years ago. A couple of observations:

  • Total System Demand is nearly 1b/day lower than two years ago. Some of this is from the power side; the rest must be core demand.
  • Receipts are down 0.3 b/day from two years back.
  • Inventory (storage) is eight bcf higher today than last year, same day
  • Socal Gas injected gas, 246 MMCF, despite $6.00 prices; in a normal, rational world storage operators like to inject cheap and draw rich; in this era, it appears SCG will inject whenever it can, regardless of price. Why not, they have zero risks, they’ll just past the cost on to their customers.
  • Kern River is sending 400 MMCF more gas into Socal than last year
  • PG&E, at Wheeler Ridge, is sending 120 MMCF more than last year
  • El Paso at Ehrenberg is sending LESS gas, 100 MMCF, versus last year. Why?
  • Look at those customer imbalances, four bcf this year where the average has been one bcf. These are inadvertent draws where customers take gas without nominating. This is like serving load in the five-minute market instead of the day ahead and is probably the source of those $6.00 spot prices.

We’ll defer to the gas experts to draw the correct conclusions, though we find the data telling.

Power Fundamentals – Demand

That cold weather arrived in the Northwest, but it is only cold in the morning; the truth of that statement is the round of golf I played in Seattle yesterday. Beyond this weekend, the weather turns much warmer; higher highs and higher lows, all of which means lower loads and perhaps lower prices.

Puget Sound Energy’s loads are a case in point. The morning peak has soared nearly 500 MW while the evening peak has barely moved. Last week the evening peak exceeded the morning by 500 MW, not yesterday, the morning bested night by 300.

We gave up trying to pick either Min or Max for California; now we choose both. LA enjoys pleasant days in the mid-70s, despite half the city in flames. Look at the number of days San Jose sets a ten-year high in max, though min is just average. Back to Socal, there is nothing bullish, power or gas, in these forecasts.

Like Puget, PG&E’s morning loads are soaring off of cold nighttime temperatures; the morning peak has rallied much more than the evening. The daily low has also surged over the last week. Not true in Socal:

Edison’s loads are just sideways, though its lows are higher, and look at the budding morning “peak”; barely registered.

The interior realizes cold weather, so is Nocal lows, but the California highs are load-neutral. Phoenix is also loaded neutral, pretty much in both its highs and lows. Portland/Seattle realized modestly cool nighttime temperatures, but its day peaks are off ten degrees from two days ago.

Generation

All hubs but SP have seen gas nominations rally. We suspect SP is rallying as well if you account for those “Customer Imbalances.” Instead of nominating, the Socal generators just pull gas and pay the fine.

Lots of wind energy inside California; no doubt the LA renewable naysayers weren’t saying nay yesterday. All the nukes are running, and we’re seeing more ISO units returning to service:

No surprise and no one should care much; those returning units are unlikely to be called upon during these bearish times.

Hydro

This is a plot of total reported Corps of Engineer Northwest hydro energy (MWH). Though the COE only reports on a week lag, Ansergy extrapolates through the current hour using actual H/K values. The chart looks bullish because of the cuts, but those are mainly driven by the big day on the 29th.

We’ve mentioned that the cuts in iISO hydro energy had reversed; in this view, we compare daily HL and LL across the last five years. Sometimes, it is nice to put data in a historical perspective.

All of that ISO hydro energy surge was explained by the recent rain storms; there are no more of those in the ten-day outlook, though the hints are becoming louder that another event lurks out there in days 11-20.

We think this Northwest dry spell is today’s  most relevant fundamental news.  Though there are, like California, hints of another system in days 11-20, a hole is being created with this dry weather. We already see it in cumulate snowpack anomalies:

Both California and the Northwest have several stations below average, and there still is another week of no precip coming. Without substantial storms, several days above normal, this hole being dug in December may very well set up both regions for a below average water year. It is early, but anomalies in mid-December are statistically relevant for predicting the April 15 finals.

The flows out of Priest Rapids are unusual; the intra-day shaping is pretty much ended.

Transmission Flows

Imports from Canada are strong suggesting a strong cash market and/or weak loads in BC.  The AC jacked TTC yesterday, but strangely, the flows didn’t approach those levels. Apparently, the trans rights holders didn’t know they could flow more. For all of the “sky is falling” comments about Socal Gas, it is absorbing that flows out of ZP  are about half of what they could be. Why isn’t that line full? Why aren’t the NP generators selling that $2,90 PG&E Citygate to SP via Path 26? And finally, Palo is yawning its way through the LA crisis by cutting its exports – go figure.

Conclusions

We think the dry weather across the hydro producing regions is the most relevant news of the day. The weather outlooks remain bearish, but our sentiment is based upon a combination of fundamentals and market prices. In a post to follow shortly, we’ll merge those to perspectives.