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Enron Mail |
Here's as good a treatise on the subject as I've seen. I think this articl=
e=20 does an excellent job of trying to explain the recent California market=20 phenomenon... Tuesday, November 28, 2000 Gas Daily No quick fix for soaring California gas prices In the past year, gas prices in most regions have doubled and in some cases= =20 tripled. But no region has seen the breadth of the price blowout now under way in the West. While Henry Hub futures on the NYMEX appear to be leading the way for highe= r=20 winter prices nationally, most industry professionals are watching in amazement at= =20 the fundamentals-driven price surge centered in the Pacific Northwest and California. The cost of gas in Southern California has been skyrocketing. Prices last= =20 week started trading in the $7-$7.50 range and by Wednesday were trading $14-$18. The cost of gas entering into the Northwest region of California via the N.= W.=20 Sumas, PG&E Citygate, and Malin interconnections also soared to incredible heights= ,=20 some pricing nearing $20/mmBtu. The most obvious cause of the dramatic escalation is scarcity of gas. The= =20 bullish fundamentals in California include heavier-than-normal heating loads due to uncommonly= =20 cold temperatures, planned and unplanned nuclear plant outages that substantially increased=20 demand for gas-generated power, depletion of storage in Southern California and=20 transmission constraints on regional pipelines. Improving deliverability into Southern California is key to bringing the=20 market back into balance, said one trader, noting constraint-causing problems that have=20 plagued pipelines serving the region, including Kern River Gas Transmission, El Paso Natural Gas and= =20 Transwestern Pipeline. Those problems had come to a head in part because of high summer prices tha= t=20 helped drain storage in Southern California and discouraged refill before the=20 winter, he said. Now, unseasonably cold weather has hit the region, amplifying market needs to me= et=20 heating loads and produce power. Add growing and competing markets in the desert Southwes= t=20 and Northern California and you have a crisis. =01&It shows that when you get all the stars aligned, there is not enough g= as to=20 meet demand,=018 he said. At most, only 15%-20% of California=01,s supply of gas comes from= =20 in-state producers, with the other 80%-85% coming from out-of-state, said Bill Woods with the=20 California Energy Commission. Roughly 60% comes from the Southwest, 15%-20% comes from Canad= a,=20 and the rest is Rocky Mountain supply. =01&At the moment, there is a lot of gas being purchased out of Canada. Bu= t=20 because of imposed restrictions and other flow transmission problems, prices are=20 soaring,=018 he said. At the moment, a lot of the new gas production in the Southern California= =20 area is mainly a byproduct of oil exploration and production =01* so any new natural gas=20 production will be associated with what the demand for oil is, he said. A majority of the =01&dry gas=018 producers are located in the northern par= t of the=20 state, which until recently, was primarily a captive market of Pacific Gas & Electric. = =20 But new production efforts are under way, he said. =01&I definitely think that there needs to be some additional action taken = to=20 enhance our own in-state production efforts, but there are a lot of bureaucratic hurdles to= =20 contend with before a company can just go in and start drilling,=018 he said. =01&Hopefully, once the cold weather comes off, and our electricity loads s= tart=20 moderating, I think pricing will adjust respectively. But until then, I guess we have n= o=20 choice but to deal with it.=018=20
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