Natural Gas Intelligence
Nearly All Points Weaken; Futures Rise On Short-Covering

Monday, April 30, 2012

Physical natural gas prices at virtually all points suffered an average 6-cent drubbing as weekend temperatures were expected to be on the mild side. Only a handful of points posted gains. Southern California was hit with double-digit declines as a temporary outage at a nuclear plant was expected to be resolved. Futures rallied on weekend short-covering, and traders see further buying should prices settle about another 10 cents higher. June futures rose 6 cents to $2.186, and July gained 5.7 cents to $2.299. June crude oil rose 38 cents to $104.93/bbl.

Bentek Energy said it expects "higher-than-normal natural gas demand to keep SoCal gas prices among the highest in the U.S. this summer. Generation capacity from nuclear and hydroelectric sources in California has been reduced significantly this year, and in April month to date it is down more than 4,500 MW, or approximately 10% of projected peak summer load." It added that nuclear was off 56% in April and hydropower was down a stout 43% from 2011.

Bentek said it expects regional gas-fired generation to incrementally increase 200 MMcf/d in the SoCal market alone until August when Songs is estimated to return to service, according to Industrial Info Resources data. Based on this structural shift in power demand combined with an expected reversion to normal demand, Bentek projects that SoCal summer demand will exceed the five-year high for natural gas power demand in three of the next four months.

Bentek sees a warmer summer and "given that several key pipelines serving SoCal and the California/Southwest market are running at capacity, California natural gas supply and storage injections will be pressured to meet local power demand, along with power imports this summer. As these trends continue, SoCal and PG&E natural gas prices will experience upward pressure and are projected to remain among the highest in the U.S., especially as temperatures this summer are expected to be higher than last year," the firm said.

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