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Western Price Survey

Week's End Edition
Febuary 29, 2008
For Western Electricity, Oil-Price Theory May Not Hold Much Water

The oil theory holds that historic crude prices pressure the natural gas markets, which in turn influence electricity prices. Let's look at how that theory played out this week at North of Path 15.

NP15 has been enjoying the kind of February temperatures -- highs in the 60s in San Francisco and lows around 50 degrees -- which should in theory drive down demand and prices: It's neither hot enough for air conditioners nor cold enough for space heaters.

Yet NP15 this week set the highest mark of Western hubs for peak electricity -- an average of $81.77/MWh in Tuesday trading, when oil closed at a then-record $100.88 a barrel. Not surprisingly, Palo Verde power also hit its high average value for electricity on Tuesday -- $74.62. Many Western natural gas hubs also reached their weekly high on Tuesday; Southern California border gas, for instance, went for $8.73/MMBtu.

The demand theory, conversely, would argue this week that warm February temperatures are more to blame for prices. The evidence is shaky: Demand on the California grid was relatively static at around 30,200 MW Monday through Wednesday. Of course, one could argue that wholesale electricity prices are capturing small fluctuations in weather-driven demand -- a jump of 15 MW in peak demand from Monday to Tuesday, and then a drop of 80 MW on Wednesday. Of course, to argue that, one would have to admit that the wholesale electricity market in California is working, and that would put a lot of lawyers out of business.

Another possible explanation for NP15 prices, the ongoing outage of the Diablo Canyon's 1,080 MW second nuclear unit, should probably be discounted, as traders have known about it for weeks.

The strongest argument against the oil factor, however, came later in the week as oil prices eclipsed the Tuesday record and hit an all-time high of $102.59 per barrel on Thursday. Despite the record, Western peak electricity prices saw their lowest values of the week, likely from the usual slack demand patterns on Friday and the weekend.

Furthermore, temperatures also dropped in the West, perhaps driving down peak demand and prices while sending nighttime values higher.

Among Western hubs, Palo Verde set the lowest prices for off-peak power ($54.75/MWh on Wednesday) and peak power ($66.75 on Thursday).

With Los Angeles enjoying daytime highs in the upper 70s, South of Path 15 hit a high peak price of $82.50/MWh on Monday and finished at an average of $78.33 Friday. Off-peak values traded tightly between $60 and $63 until gaining a few dollars on Friday.

Seattle had intermittent rain and temperatures between 40 and 50 degrees all week, producing peak values at Mid-Columbia that wobbled, though they ended up Friday $2 less on average than on Monday. Off-peak values tended to hover around $65/MWh much of the week, seeing a dip on Thursday from the usual low-demand scenario.

Finally, the nighttime power-price award goes this week to the California-Oregon border, which reached $68.50 on Friday [Chris Raphael].

Crude Oil, Cold Weather Forecast Affect Natural Gas Prices

Natural gas futures on the NYMEX hit $9.44 on Thursday, a two-year high. The two most obvious explanations: the price of crude oil, which hit a high of $102.59/barrel on Thursday, and a weather forecast calling for colder-than-normal March weather in the Northeast and Midwest.

Natural gas stocks declined by an expected 151 Bcf last week, the U.S. Energy Information Administration reported Thursday. Most of the storage drop, 100 Bcf, came in the East, while the West suffered a 16 Bcf slip. Overall, stocks are 133 Bcf lower than last year at this time, though still 87 Bcf above the five-year average.

Curiously, Western natural gas prices later in the week did not seem affected by the futures prices. Southern California border gas dropped about 15 cents on Thursday and then plummeted by another 20 cents Friday, settling at an average of $8.34/MMBtu. San Juan and Permian Basin gas followed a similar trajectory. This week's exception was Malin, which started at an average of $8.62/MMBtu, dropped Thursday, then gained Friday to finish at $8.57 [C. R.].

Western Electricity Prices
Week's End: February 25 - 29, 2008
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 39.15-279.59 14.55-63.06
Mid-Columbia 67.25-73 62.75-68
COB 69.55-78 63.50-68.50
NP 15 74.20-82.55 58.50-67
SP 15 74-82.40 58.20-67.50
Palo Verde 66.75-75.25 54.75-62.65

Archives of the Western Price Survey for the past year are also available online.

The Western Price Survey is excerpted from Energy NewsData's comprehensive regional news services. See for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of either or both California Energy Markets and Clearing Up.

Please contact with questions or comments about this site.

Contact Chris Raphael, editor with questions regarding Price Survey Content.

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