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The April natural gas exchange contract continues to trade in the trading range between mid $3.90’s and the mid $3.705’s. Warm weather seems to be the theme of the day and continues to lessen the expectations of a sub 1.6 tcf storage carrying out at the end of March 31st. As we discussed on Friday, some of the nuclear shutdowns in Japan will potentially increase LNG demand and curtail LNG shipments to the U.S. However, tempering this incremental demand is that the infrastructure will need to be repaired and demand might be tepid due to all of the damage to power lines and homes in the time being. We’ll continue to monitor this energy impacting event.
Around the world this morning, nothing has changed with a Saudi official has confirmed this morning that more than 1,000 Saudi troops have entered Bahrain where reportedly tens of thousands of protesters rallied in front of Bahrain’s royal palace demanding political freedom and the ouster of the King. Fighting has now escalated in Yemen while in Jordan reports that up to 10,000 people in the streets in Jordan were voicing support for King Abdullah and apparently outnumbering the number of protesters. In Libya the fighting continues but reports that the rebels have lost some ground with their forces leaving the town of Brega and reports that they have begun to lose their hold on Benghazi as well. The Arab League on Saturday asked the UN Security Council to impose a no fly zone over Libya. Libya’s Al Jurf offshore oil has reportedly stopped production according to the chief executive of Total. With the situation in Japan, reports are circulating that with nuclear plant outages it will cause a spike in LNG demand. In 2002 the shutdown of 17 of their 54 reactors for safety inspections caused an 11% increase in LNG demand in Japan the next year. Reuter’s is also reporting that Chinese implied oil demand seen up 10.3% year on year to 9.54 mbpd in February which is the 2nd highest level on record.
On the electricity front this morning, PJM Interconnection's wholesale electric energy and capacity markets produced competitive results last year, according to the 2010 State of the Market Report for PJM, released by Monitoring Analytics, LLC, and the Independent Market Monitor for PJM. Market Monitor Joseph Bowring discussed findings of the report during a briefing in Washington, D.C. The report is the Independent Market Monitor's annual assessment of the competitiveness of the wholesale electricity markets managed by PJM in 13 states and the District of Columbia. It analyzes market structure, participant behavior and market performance for each of the PJM markets. The report found that energy prices rose by 23.8 percent in 2010 and that average hourly load increased by 4.7 percent in 2010 while congestion increased by 99 percent. The report concluded that the increase in prices was the result of increases in fuel costs and in load. The report also concluded that prices in PJM are set, on average, by marginal units operating at, or close to, their marginal costs. This is evidence of competitive behavior and competitive market outcomes the report indicated. The report finds competitive results for PJM's Energy, Capacity, Synchronized Reserve and Day Ahead Scheduling Reserve Markets and the Financial Transmission Rights Auctions. The report concluded that, although the behavior of market participants was competitive, the PJM Regulation Market did not produce competitive results as a consequence of changes to the rules concerning, among other things, the calculation of opportunity costs. "The Regulation Market accounts for only 0.5 percent of the total price of wholesale power, but is nonetheless a significant part of the overall PJM market design. The rules responsible for this outcome were flawed when implemented and remain flawed, although PJM has corrected some issues the report states.
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