Good Morning,
Weather forecast is a mixed bag with one constant – dry. Mid-C struggles to retain cold weather (at least on the west side), California enjoys a lingering chill, and the Great Basin and Rockies are just plain cold.
The 500 mb says it best:
The cold front gets cut off by onshore flows leaving it trapped in the south. Burbank is projected to have a few days colder than Seattle:
That doesn’t happen very often, either, but it’s a waste of cold air as the golden state’s demand is not that elastic to HDD. Oh well, it’s dry as a bone, in fact the driest 10 day forecast since mid-Nov. The cold hasn’t shown up in actual loads, yet, but is showing up in the demand forecasts:
This is a bullish turn of the screw for all of WECC, maybe that is why gas has rallied? Bullish near-term but looking further out the snow pack is building everywhere:
You have to look hard to find any basin below normal, some are massive (Salmon is at 154%); in fact the entire Snake is as robust as it has been in years. Even California is looking at a solid water year.
Another short-term bullish factor is the projected loss of about 2000 MWs of Mid-C wind energy over the next ten days:
We already said we were bullish prompt, even Feb, but never commented on the Qs, until now. Let’s look at Q2 Mid-C on peak:
The market has loved this Q more than we did, then changed it’s mind and decided it wasn’t such a good thing to own. I attribute this to the delayed reaction to building snowpack – our model reacts, and quantifies in terms of price, the impact of snow hours after the NRCS releases its updates. The market tends to take a bit longer, probably because it relies on the NWRFC’s water supply reports which currently lag by a few days. I suspect they are lagging more than usual because of an embedded El-Nino dry bias, not sure on that, just a guess.
Just because the market has tumbled so far doesn’t necessarily make it a buy, what makes it a potential buy is the 10 days of dry, but if I had to take a position I’d sell it based on current snow pack anomalies – these are levels that will drive single digit prices. The light load has a different story to tell, and a different plot:
Here we see our forecast over the market as the market has now dispatched Colstrip and Bridger at night for all of Q2 … be careful of that. Big snow typically means delayed runoff and the Mid-C can be notoriously cold in Q2 (definitely colder at night). I’d be a buyer at these new found bottoms so what I’m really saying is I’d short the Q2 Mid-C on/off at $6.75 but be prepared to leg out of the long Q2 sometime in April.
Another Mid-C trade that has flipped is the Q3|Q2 roll:
The market hated the roll in Oct and Nov, now is starting to take a shining towards it while the forecast has only shown disdain. Most of this is driven by the ever increasing hydro projected for July, especially the first half, which keeps Mid-C mired in the 7k heat rates:
With low gas prices the 7k units look like coal plants which is why the Q2 forecast is relatively indifferent about another 2000 MWs of hydro, whereas July enjoys much more elasticity to price with a change in hydro.
Unless something changes this will be the last post before Christmas. Enjoy a safe and happy holiday. Though the Ansergy team will be taking a holiday the models won’t, they will be running 24/7. Be sure to check the site (or more accurately, tell your real-time folks to check the site) for those of you that have subscribed to the data product. For those without the product I suggest you contact Bill or I and upgrade your subscription by taking advantage of our end of year discounts.
Cheers,
Mike