Western Price Survey
July 18, 2014
With tame weather, moderate demand, and falling natural gas values, power prices had nowhere to go but down.
Peak-power values in California dropped about $15 on average since last Friday to $50/MWh by July 18. The decline in the Northwest over the same stretch was more severe, with the California-Oregon Border and Mid-Columbia hubs shedding about $25/MWh to around $40/MWh. Off-peak prices also dipped, with Northwest hubs finishing around $30/MWh (see charts).
The previous week's prices, however, were impacted by a heat wave. As the heat abated, and with high temperatures forecast in the low 70s on Monday for major cities such as Los Angeles, San Francisco, and Seattle, energy prices took a dive.
Power values also had little support from natural gas. From July 10 to 17, Henry Hub prices dipped about 8 cents to $4.04/MMBtu. Over the same period, SoCal Border gas dropped 16 cents to $4.28 and Sumas gas shed 15 cents to $3.93/MMBtu.
A research note from Barclays argued that the July 4 holiday and impact of Hurricane Arthur contributed to natural gas demand weakness in early July. This weakness has continued, with the national weather forecast remaining cooler than normal and production growing quickly. An initial assessment indicates that U.S. gas production has grown 3.3 Bcf/d on a year-over-year basis, and 321 MMcf/d on a month-over-month basis.
These factors "have lessened market anxieties about lower-than-average storage levels, as the storage deficit continues to narrow compared with seasonal norms," analysts stated. "Nevertheless, we still believe prices should average about $4.40 in a normal weather scenario for Q3 as the summer progresses."
Working gas in storage was 2,129 Bcf as of Friday, July 11, according to U.S. Energy Information Administration estimates. This represents a net increase of 107 Bcf from the previous week.
In its weekly natural gas report, the EIA noted that, while the number of natural gas-directed drilling rigs is particularly low right now, gas production continues rising, and is now up 5 percent year over year. "One key reason for the gas production boost is the significant increase in natural gas reserves and production associated with tight oil drilling and production," the EIA stated. Where tight, or shale, oil production has been growing, natural gas production also has been growing. California, however, which has little if any tight oil production, has posted a 16 percent decline in associated natural gas reserves over the past five years -- from 2.2 Tcf at year-end 2007 to 1.8 Tcf at year-end 2012 [Chris Raphael].
Archives of the Western Price Survey for the past year are also available online.
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