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Western Price Survey

Week's End Edition
December 31, 2009
Power Prices Take a New Year's Break

Electricity prices declined ahead of the New Year on lower spot natural gas prices, which fell 20 cents to 35 cents/MMBtu this week at key Western hubs.

By Thursday, spot gas prices at the San Juan Basin had dropped about 37 cents for the week to $5.64/MMBtu. Malin gas, which had traded above $6/MMBtu at the start of the week, was trading at $5.80 Thursday. Southern California border gas followed the same trajectory (see chart).

Trading this week has been abbreviated in honor of the New Year, and markets will be closed on Friday. On Thursday, peak power was bought and sold for Monday delivery.

Power demand steadily dropped this week from 30,000 MW on Monday to around 28,000 MW on Wednesday, according to the California Independent System Operator. Thursday peak usage was projected to fall to 25,600 MW.

Since Monday, California daytime prices declined $2 across the state to $52.47/MWh at North of Path 15 and $50.95 at South of Path 15. But nighttime trades rose about $1 to average $43.36/MWh in the north and $41.31 in the south.

Palo Verde peak prices fell $3 to $47.17 and off-peak values gave back over $4 to $33.57/MWh.

In the Northwest, Mid-Columbia prime prices dropped $4 to an average of $48.07/MWh, while off-prime trades inched down $1 to $43.37. California-Oregon border prices were nearly identical (see chart).

A blast of cold weather across much of the country drew down natural gas supplies by 124 Bcf last week, according to the U.S. Energy Information Administration. At 3.276 Tcf, stockpiles across the country are about 13 percent higher than last year and the five-year average.

Western supplies dipped by 11 Bcf to 453 Bcf and now stand 12.4 percent higher than the same period last year and nearly 17 percent higher than the five-year average.

A cold snap and attendant higher demand have driven natural gas prices on Nymex to their highest levels in nearly a year. On Monday, natural gas for January delivery settled at $5.99/MMBtu, the highest closing since Jan. 5, 2009. However, prices have come down since then as traders booked profits and the January delivery expired on Tuesday. On Thursday, prices for February natural gas closed down 13 cents at $5.57/MMBtu.

After the holidays, natural gas prices will likely recover as the winter heating season ramps up and power demand remains high. In the coming year, prices are expected to rise as the economy recovers and demand at factories and other businesses picks up. The recovery is expected to begin mid-year, and natural gas contracts reflect that expectation. Contracts for June delivery on Nymex closed at $5.61/MMBtu on Thursday and ran as high as $6.55 for December 2010 delivery.

But continued high production levels could have a negative effect on prices. Next year, natural gas production is expected to increase by nearly 4 percent while consumption is projected to drop by about 2 percent, the EIA said. Although energy drillers have dialed back the number of rigs in operation across the country, there is still a large supply glut thanks to a tremendous boom in production over the last few years. By the end of this winter, the country will likely see the biggest storage levels for the winter heating season since 1991.

Higher crude-oil prices have also pressured natural gas prices. Falling crude supplies, higher demand and an unexpected dip in claims for unemployment benefits last week helped boost crude-oil futures to $70.36 Thursday, a seven-week high. Also on Thursday, the U.S. Labor Department reported new claims for unemployment benefits had declined to their lowest point in 17 months. Supplies of crude are also at their lowest point since March, according to the EIA, and fell last week by 1.5 million barrels.

All the West Coast nuclear facilities have returned to full power with the sole exception of the San Onofre Nuclear Generating Station. The plant's 1,070 MW second unit remains closed for the replacement of its two steam generators [Kristina Shevory].

Western Electricity Prices
Week's End: December 28 - 31, 2009
Hub Peak (heavy) Off-peak (light)
Alberta Pool (C$) 16.74-76.91 13-52.13
Mid-Columbia 44-55.25 40.50-47.50
COB 45-58 40-49
NP 15* 46.75-55 41-43.55
SP 15* 45.25-53.50 39.50-41.55
Palo Verde 39.50-53 33-39

* Prices represent both day-ahead locational marginal prices (financial swaps, or EZ Gen DA LMPs) and quasi-swap prices (EZ Gen) as reported by ICE.

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


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