Good Morning,
This will be our last post until next week, and we wish all of you a very happy, and safe, holiday and extend our thanks to all for supporting our business. We are excited about next year, 2017, and look forward to working with all of you. With that out of the way, let’s see what Mr. Market cooked up over the last couple of days.
Demand
Big haircut at the Mid-C, no surprise given last week was cold and this week isn’t, and flat everywhere else. What’s coming?
Mid-C Composite
Two bullish mini-developments, that we see, from today’s weather. First, another “cold snap” arriving on Christmas Eve – those lows are similar, at least on the west-side, as the big event over last weekend. Plus the forecast has made a radical change from Monday’s suggesting something new happened. BOM is over, mostly, but the more cold weather will drive up demand. More on the precip below, as the reality is not quite how it looks in the above plot.
Sacramento, CA
Warmer than Monday’s outlook, still modestly cold for the rest of the month. Nothing in that chart to suggest an impending collapse and often what isn’t is more relevant than what is.
Burbank, CA
What isn’t here is anything of interest; weather in LA is above normal and slightly warmer than going out Monday. Not a lot to bring joy to the ISO gencos.
Phoenix, AZ
You won’t often see us tag Phoenix with a precip chart, but we did today off of the nearly two inches of rain heading towards the desert. Hope you bought tee time insurance.
Hydro
Where did those PHX two inches come from? The station was forecasted to get zero yesterday, two today? Highly suspect, rarely do we see such a radical change. NP is poised to get wet again, just as its rivers are starting to back off, while the Mid-C goes dryer.
Dryer, but not dry. Kalispell is set to receive 0.71″, almost twice normal. Let’s just call the remainder of the month normal and then we can call the kick off of FY17 normal, which suggests the Flood Control values used by the Corps will be normal. If they (the Corps) want to work on drum gates this year, the snow levels will support that decision. Still too early to say they will, but you can’t rule it out. More on next week as we get closer.
We mentioned the Cal rivers are backing off, the Pit is down nearly 25%, but with above normal rain in the outlook they will be recharged and rally up for the last week of Dec.
We almost titled this post “Hangover” because that is what the Mid-C is feeling right now. Hung over from all the water drafted to meet those weekend loads (and last week’s cold). Note the week-on-week anomalies for the major dams – all hugely up. This should come as no surprise; it takes days to work that water out of the system and with potential Xmas cold we can expect more drafting.
Reservoirs (KAF)
Collectively, BC and Mid-C are almost 2.5 MAF lower than a month ago – those epic rains have officially been worked out of the system. We doubt the NWRFC will any longer incorporate a bal-water year bias for what happened in October – not when that rain is now floating past New Zealand.
Generation
ISO Outages
Total outages are off nearly 5000 MW in the ISO from two weeks ago; that is bearish but more normal than not.
Just two units tripped, both gas, while a few came back…
But more new MW are offline today than Monday, call it modestly bullish, though doubt it has any impact on the market.
Gas Noms (hub totals) have cratered, look at SP, which may explain why spot gas had a significant bowel movement yesterday:
That drop in gas price looks more like what you’d see in power; crazy volatile, huh? Mid-C gas noms are backing down:
No surprise, the cold is over, but we expect the gencos/utes to fire those back up over the weekend if that cold holds.
Transmission
Inside trans flows lie some salient clues about why Mid-C bom rallied yesterday.
Both the AC and DC, collectively, exported 2000 aMW more energy yesterday than the weekly average. Compare that 2000 aMW with the 1300 peak demand haircut, and you find the hub net shorter, before accounting for that hydro hangover.
Some of that net short is off-set by the extra 200 aMW BC exported into the Mid-C.
Flows out of ZP26 remain below the weekly average but above the odd levels from a few days ago.
In closing our fundamental review we’d like to look at the Ansergy gas demand indexes:
One would expect the indexes to be falling off a cliff given the spot gas collapse, but we don’t see that. If anything, West gas demand is above the three-year average so we wouldn’t be surprised to see basis tighten across the West as its near-term outlook is not that bearish.
Conclusions
- BOM
- MidC
- Mr. Market panicked and over-sold the bom MidC, then quickly corrected his mistake and brought value back to parity. We were out of this, but now we are going to buy it off of that new-found cold weather and the mere fact we’d rather be long, then short, given the hub’s position in the stack.
- We like seeing the forecast sitting at a positive inflection point and think the downside is limited. All we need is for a Coldstrip unit to trip over the weekend and we’re off to the races. …………LONG
- SP
- We’ll love what you hate, and you’ve hated SP so much its now dirt cheap, we think. The stack suggests it might be reasonably safe to own, too
- Forget those left-side inflections, just won’t happen because of the transmission. If SP teeters, Mid-C quits exporting; if Mid-C gets tight it will back off exports, we already saw a 1000 MW cuts last week, might see something similar over the weekend … LONG
- MidC
- Q1
- NP-MC: Not a lot of conviction (too many regulatory variables not yet defined) so we’ll look at a spread
- Tight deltas, the Mid-C has rallied a bit while the NP has come off all of which makes us biased bullish. We think Mid-C has more downside in Q1 than up given its opportunity to prematurely draft for drum gate, all of which will put pressure on Feb-Mar. …………. LONG
- NP-MC: Not a lot of conviction (too many regulatory variables not yet defined) so we’ll look at a spread
- Q2
- SP-MC
- Both the market and forecast have sold off, now the spread is approaching 60-day lows. The trend would suggest selling, but we hate trends and prefer owning this spread for the same reason we’d own the NP-MC q1. If there is drum gate work Mid-C Feb-Mar cash looks vulnerable, and we know what cash can do to prompt, plus we like to buy low …we are LONG
- SP-MC