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Western Price Survey

Week's End Edition
December 5, 2008
Energy Prices Scrape Bottom With Job Losses, Recession, Heavy Gas Storage

At a Thursday meeting of the natural gas working group, held at the California Energy Commission, SoCal Gas reported that border prices for natural gas have fallen to $3.70/MMBtu in November 2008, from $10.40/MMBtu four months ago.

SoCal Gas said the low California gas prices reflect depressed values in producing regions in the Rocky Mountains as well as basins in the San Juan, Permian, and Panhandle areas. Those price drops are being driven by mild summer weather, high storage levels, low crude oil prices at $50/barrel and an economic slowdown. As a result, many oil and natural gas producers are slowing down drilling, or are halting production to reduce expenditures.

The utility's analysis has been playing out in reality, especially this week. A recession was formally declared by the National Bureau of Economic Research -- the official arbiter of the "R" word -- and the bureau said it began last December. Manufacturing shrank the most in nearly three decades last month, the Institute for Supply Management reported. Finally, job losses totaled 533,000 last month, the biggest drop since December 1974, according to the Bureau of Labor Statistics. The unemployment rate is now at 6.7 percent.

Meanwhile, crude prices were at a four-year low of $41.14 a barrel on Friday following the release of the dour unemployment report. Prices have tumbled more than 70 percent since the economy began to unravel in July. This week alone, crude prices have lost about $8 and OPEC, which controls 40 percent of the world's oil, decided in a meeting last weekend not to trim production a second time. The group had already agreed to a 1.5 million bbl/d cut to slow sliding prices in October, but it has had little effect.

On the natural gas front, 64 Bcf was withdrawn from storage last week, the Energy Information Administration said, less than the expected 68 Bcf that analysts predicted. There is now 3.358 Tcf in storage, or 3 percent less than a year ago -- but 2 percent higher than the five-year average. Western storage saw a dip of 1 Bcf to 466 Bcf last week, putting levels nearly even with last year and 8 percent higher than the five-year average.

Meanwhile, this week, the benchmark Henry Hub contract for January dropped from $6.60/MMBtu on Monday to $5.75/MMBtu on Friday. Losses in the Western day-ahead markets extended from 50 to 90 cents, with prices as low as $4.51/MMBtu at San Juan. Analysts predict that lower natural gas prices this winter will shave residential gas bills this winter in Southern California by 10 percent to $69.32 a month, for a thermostat set at 63 degrees Fahrenheit and to $82.53 for a thermostat set at 75.

Demand for electricity in the Golden State remained about the same at 31,300 MW this week, the California Independent System Operator said, thanks largely to mild weather across most of the state. Usage was expected to creep down to 30,700 MW this weekend.

Prime California trades tumbled $7 for North and South of Path 15 to around $49/MWh. Off prime values were off about $2 to average $39.51/MWh in the north and $38.63/Mwh in the south.

Average Palo Verde peak trades lost $4 to $42.49/MWh, while off-peak values were down $1 to $33.46/MWh.

The Northwest has enjoyed sunny days and warmer-than-average temperatures thanks to the jetstream moving north into British Columbia and repelling the rain storms. But it won't last that much longer, AccuWeather said. Come Saturday night, rain returns to the region, though temperatures will largely remain the same from the high 40s to low 50s in Portland and Seattle.

At the California-Oregon border, peak prices dropped $1 this week to average $51.59/MWh, while off-peak prices climbed about 70 cents to an average of $41.44/MWh.

Average daytime Mid-Columbia prices fell 46 cents to $48.88/MWh. Nighttime trades shed $1 to an average of $42.42/MWh.

The Palo Verde nuclear plant in Arizona has its 1,336-MW second unit down for repairs to its turbine-cooling system and is likely to return to service in a few weeks. San Onofre Nuclear Generating System's 1,080-MW third unit is still offline for maintenance and refueling [Kristina Shevory].

Western Electricity Prices
Week's End: December 1 - 5, 2008
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 27.57-730.01 21.06-80.44
Mid-Columbia 45-51.50 35-45.25
COB 50.75-54 35-45
NP 15 48.25-57.25 37.50-43.25
SP 15 48.25-58 37-42
Palo Verde 41-48 29-39

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


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