March 16, 2009

What Happens When Supply Drops Faster Than Demand?
Prices soar. In a Bloomberg.com article this morning, Reg Curran notes that almost 45% of US rigs have been shut down, which will cause fourth quarter gas production to tumble by over 5%. He states, "The last time drillers stopped rigs at this pace was seven years ago when futures advanced 86%." Just since September of 2008, the US has 722 fewer drilling rigs; according to Baker Hughes we currently have 884 active drilling rigs.

The consensus among recently-polled Bloomberg analysts is that natural gas will reach $7.00 per mmbtu by the end of the year. We anticipate the EIA to readjust their pricing expectations up to reflect the supply destruction that we have been following.

Natural Gas Storage
Working gas in storage was 1,681 Bcf as of Friday, March 6, 2009, according to EIA estimates. This represents a net decline of 112 Bcf from the previous week. Stocks were 271 Bcf higher than last year at this time and 197 Bcf above the 5-year average of 1,484 Bcf.

Russia Helping the World Economy
Thanks to the economic mismanagement of the Russian economy, Russia is not complying with OPEC's calls for production cutbacks. The Putin regime finds itself cash-strapped and has opened the oil spigots to the West. Russia is the world's largest oil producer and is not an official member of OPEC. Its exports almost match OPEC's cuts, helping keep oil prices down. Russia is helping Western economies recover, which must bother their oil and gas czars immensely. This year, production in the US will increase as the Gulf of Mexico Thunderhorse project begins production with up to 260,000 bbls/day. Brazil is also increasing production by 160,000 bbls/day. And Mexico is expected to boost production.

Schumer Attacks Death Star Gambit
"US Senator Charles Schumer Sunday called for a probe into bids and auction results of the New York Independent System Operator (NYISO), the entity that is responsible for pricing power to New York State utilities and large customers, contending that some bidders may be gaming the bidding process, which has led to $2.2 billion a year overpayment by ratepayers, according to a recent report." (Empire State News. Net)

We reported on the Enron-style "DeathStar" gambit that took advantage of artificially induced congestion pricing in the Western New York area in 2008. FERC investigated the gambit but never revealed the names of the companies involved or the potential financial impact to New York state consumers.

Natural Gas Market Watch- Intraday Prices Snapshot
Here are the intraday prices on the NYMEX electronic market today (Monday) at about 9:25 AM for the next five months($ per mmbtu, intraday prices):

Apr.-09 $3.848 -0.084
May.-09 $3.926 -0.080
Jun.-09 $4.043 -0.083
Jul.-09 $4.180 -0.078
Aug.-09 N/A   N/A

Natural Gas Futures:
PMC 30-Day, 90-Day, 12-month Natural Gas Futures Chart

Crude Oil Watch
West Texas Cushing traded down $.78 to $46.25 per bbl on Friday, 3/13.
NYMEX Crude front month future is down $1.57 per bbl this morning to $44.68 at 8:25 AM.
 OPEC Basket Data

Electricity Watch
Northeastern electricity prices are back close to the $30 per MWH channel as low natural gas prices keep area rates at shoulder market levels. Review the historic trends for key electric markets in the Northeast with the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
 
Weather Trends
According to the National Weather Service, most of the South, Midwest and Northeast will be warmer than normal next week and gradually shift to colder than normal for New England and Florida in two weeks.
 
NOAA Forecast for Next Week
8-14 Day forecast
NOAA Forecast- 30-Days

Written and Researched by Martin Linskey; Energy Charts developed by Charles Myers.

Disclaimer: This information is provided for the use of our customers and potential customers. Power Management Company assumes no responsibility or liability for the accuracy or completeness of pricing or information in this document. Historical data was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. Views are subject to change without notice.