The natural gas market has been extremely volatile. Almost half of the last twenty NYMEX trading days have had the prompt month swing more than 20 cents. Monday March 17th the NYMEX prompt fell 76 cents on weakness in the financial markets which spurred selling in many commodities; however the market gained back more than 31 cents on Tuesday. The NYMEX has gone from a recent low of $5.83 in late August to $10.23 as of last week.

The U.S. natural gas storage draw of 86 Bcf last week left storage at 1.398 Tcf as of March 7th, which is 151 Bcf behind levels of last year. Overall, current storage levels are 57 Bcf above the 5-year average. Global prices for natural gas have flattened over the last few weeks. Currently, European prices are at a 50 cents premium to U.S. prices.

Friday’s close shows the European gas prices at $10.717 U.S./mmbtu, while NYMEX closed at $10.23 U.S./mmbtu. The Asian market will pay more than Europe or the U.S. for liquid natural gas cargoes this winter, but they cannot take away all shipments. Given the convergence between European and U.S. prices, traders will be examining this. The first U.S. West Cost re-gasification terminal, Sempra’s Costa Azul terminal, is scheduled to receive its first shipment in early April. The openings of this terminal will likely lead to more price discovery (arbitrage) between the Japanese and U.S. markets.

It looks like TCPL tolls will be increasing as of April 1st , 2008. Presently TCPL (Eastern Zone) tolls are $1.09 Cdn per GJ. TCPL applied to the NEB yesterday for a toll increase to $1.3100/GJ at a higher level. TCPL comments that the main drivers of the toll increase are lower system flows and shorter distances of haul expected in 2008. A TCPL increase as noted above makes Eastern deliveries relatively an inexpensive alternative.

Ontario Electricity

Average ON PEAK Price for March: 7.0 cents / kWh
ON PEAK Hours over 7.0 cents: 45 % in March 32% year to date
Highest price in the past week: 18.4 cents / kWh on March 13th

The Province has started on the road to procuring more nuclear generation in Ontario. The Minister of Energy outlined a two phase Request for Proposal on March 7th to select a nuclear vendor. There are four companies short-listed: AREVA NP, Atomic Energy of Canada Ltd., GE Hitachi Nuclear Energy and Westinghouse Electric Company. A team of industry experts directed by Infrastructure Ontario will manage and review the RFP. Team members will include the OPG, Bruce Power, the Ministry of Energy and the Ministry of Finance. The winning company is expected to be chosen by the end of 2008, with construction to commence in 2012 and energy flowing by 2018. The size of the plant will likely be in the 3,000 to 4,000 MW ranges; which are much larger than originally anticipated.

Natural gas prices have been rising steadily in 2008. Like any commodity, the price of natural gas does fluctuate. Power prices are closely linked to the cost of natural gas. When, the future cost of gas comes down so likely will power price hedges. If you have signed a power strategy with your client services representative, we can monitor the market for the best price for your company. There may be some very good opportunities in the coming months for attractively priced hedges for 2009 and beyond.