Weekly Energy Industry Summary

Commodity Fundamentals

Week of May 2, 2021

By The Numbers:

  • NG June '21 prompt-month opened at $2.938/MMbtu, up +$0.007/MMbtu from last week's settlement.
  • WTI June '21 prompt-month futures opened at $63.64/bbl, up +$0.06/bbl from last week's settlement.
  • Coal spot contract trades are at $59.70/ton, unchanged from last week's settlement.

Natural Gas Fundamentals -  Neutral

  • Prompt-month NYMEX natural gas opened trading on Monday, May 2, at $2.938/MMbtu, up slightly from the previous settlement of $2.931.
  • Prompt-month NYMEX natural gas proceeded to trade flat from the open trading at $2.93/MMbtu in early afternoon.
  • Low storage injections and early hot-summer forecasts along with continued strength in liquefied natural gas (LNG) exports are supporting the gas market in recent weeks.

Crude Oil - Neutral/Bullish

  • Prompt-month crude oil prices opened on May 3 at $63.64/bbl, up slightly from the previous settlement of $63.58. 
  • After the open, prompt-month crude traded up +$.70/barrel in early afternoon to $64.28/bbl.
  • Crude continues to hover around $65/bbl with the U.S. economy as a tailwind but with some competing head winds relative to COVID-19 outbreaks in India and parts of the European Union.

Economy - Bullish

  • Consumers are splurging on cars and furniture and facing extended waits for delivery. Meanwhile, restaurants and gyms are reopening and struggling to find workers. Factories and home builders are trying to ramp up but are short on semiconductors and raw materials, The Wall Street Journal reported.
  • Federal Reserve officials downplay supply and cost problems as transitory, saying they are not widespread enough to threaten corporate profits or the U.S. economy for long, amid strong sales, The Wall Street Journal reported.

Weather - Neutral

 
  • May is signaling a bit cooler in the Midwest and Northeast over the coming two weeks while the South is going to see air conditioning load ramp up. California and the Southwest are very warm. The Pacific Northwest is cooler and damp.
  • The drought remains in the Southwest and Texas and continues to signal a hotter-than normal summer outcome.

Weekly Natural Gas Report:

 

The U.S. Energy Information Administration (EIA) reported an injection of 15 Bcf into storage for the week ending April 23. Current inventory is 1,898 Bcf, -14% lower than last year and -2% lower than the five-year average. The natural gas plants liquids composite price at Mont Belvieu, Texas, averaged $7.07/MMBtu for the week ending April 28, up +$0.21/MMbtu. The natural gas rig count remained flat at 94 units, and oil-directed rigs fell by one to 343 for the week ending April 20, according to Baker Hughes. U.S. natural gas production is 90.6 Bcf/day, and exports of liquefied natural gas (LNG) remained strong, exceeding 11 Bcf/day. 

Prices reflect week ending April 30, 2021

Prices reflect week ending April 30, 2021

Weekly Power Report:

Power - Neutral

Forward power prices through 2025 were higher week-over-week across all competitive regions. The largest increases continue to be in CAISO (+2-3%). New York 2022 increased by (+2.2%) while the 2023-2025 increased about (+1.0%). All other regions were up slightly (+0.5% to +1%). 

Mid-Atlantic Electric Summary

  • The Mid-Atlantic region’s forward power prices consolidated, trading sideways, while natural gas futures had increased by +9% over the course of the week. Lingering cold in April, which has diverted natural gas away from being injected into storage and toward heating demand usage, continues to support prices upward in the first of the spring’s “shoulder months” ahead of the summer peak season. The pace at which the market is able to inject gas into storage reservoirs from the end of one winter, to the start of next, tends to be a significant factor in causing future gas and power prices to either be supported or pressed downward during the coming months. Last week, power forward calendar strip prices were relatively unchanged from the front of the price curve starting in 2022, all the way to the back end of the curve through 2026. Prices for the entire strip are currently trading within +8% of the all-time low prices for those years, with Cal’22 currently +11% higher than those lows while the longer-term Cal’25 strip is trading slightly lower than that, at +7% from those established lows. Index prices remain higher month-over-month and year-over-year. Day-ahead index power prices in West Hub averaged $27.41/MWh in April and are +14% higher than March and +53% higher than last year, while the full month index average for April in the Eastern Hub settled at $30.54/MWh or 15% higher than March and +78% higher than last year for the entirety of the month.
  • On April 26th, Delegate Lorig Charkoudian (D), organized 45 state legislators within PJM to file comments requesting the Federal Energy Regulatory Commission (FERC) to eliminate the minimum offer price rule (MOPR) and proposed reforming the Fixed Resource Requirement (FRR) so states can have more control over how long they use the mechanism and how much capacity they procure through it.  The comments are in response to an ongoing FERC proceeding exploring reforms to the PJM capacity market construct to better accommodate state clean energy goals while maintaining low costs and reliability. In their filing, the legislators ask FERC to allow states and their utilities to procure less than 100% of their resources through an FRR and have the ability to reenter the capacity market after one year of electing to use the FRR. The comments were signed mostly by legislators from Maryland but also included lawmakers from New Jersey, Indiana, North Carolina, Pennsylvania and West Virginia.

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices consolidated, and trading sideways, while natural gas futures had increased by +9% over the course of the week. Lingering cold in April that has diverted natural gas away from being injected into storage and toward heating demand usage, continues to support prices upward in the first of the spring’s “shoulder months” ahead of the summer peak season. The pace at which the market is able to inject gas into storage reservoirs from the end of one winter, to the start of next, tends to be a significant factor in causing future gas and power prices to either be supported or pressed downward during the coming months. Last week, power forward calendar strip prices were +1% higher in the front of the price curve for 2022, while all the rest of the years through 2026 were unchanged. Prices for the entire strip are currently trading within +13% of the all-time low prices for those years, with Cal’22 currently +14% higher than those lows while the longer-term Cal’24 strip is trading slightly lower than that, at +12% from those established lows. Index prices remain higher month-over-month and year-over-year. Day-ahead index power prices in ComEd averaged $25.15/MWh for April, which is +17% higher than March's average settlement price but +66% higher than last year, while AdHub prices for April averaged $28.44/MWh or +17% higher than for March and +65% higher than last year. So far in Michigan, the April index settlement price averaged $27.24/MWh or +21% higher than March's average and +42% higher than last year at this time, while Ameren's monthly average price for April was $26.41/MWh or +13% higher month-over-month and +45% higher year-over-year.
  • On April 28th, PJM presented stakeholders with its initial reform proposal in satisfaction of “Phase I” of its Critical Issue Fast Path (CIFP) process to address minimum offer price rule (MOPR) reforms. PJM’s initial proposal adopts a far more accommodating tone toward state policy preferences, assuming that all state policies are developed in “good faith” and applying the MOPR to state-supported resources only if the state support is “tethered” to and “targeted” at the wholesale market by having the effect of replacing the wholesale rate for a FERC-jurisdictional product (capacity, energy or ancillaries) by making the state support or level of support contingent on clearing in the FERC-jurisdictional market.  PJM also proposes to apply the MOPR to resources supported by self-supply load-serving entities (LSEs), such as public power, that fail screens that test for a net short position.  PJM proposes that the MOPR tests apply to all technologies, new and existing, except that demand response, energy efficiency, and price-responsive demand would be exempt.

Northeast Energy Summary

  • On April 28th, the Office of Maine Governor Janet Mills announced new legislation for a 10-year moratorium on new offshore wind projects located in state waters. The bill walks the fine line between preserving Maine’s robust fishing and recreation industries but still supportive of clean energy as projects in federal waters are and would still be permissible, like the state’s investment in floating offshore wind technology research. The current bill addresses staunch concerns from the fishing industry about the harm of new projects in state waters where 75 percent of commercial lobster harvesting occurs while continuing to advance clean energy initiatives, which benefit not only the environment but the local economy as well.
  • Governor Cuomo also used Earth Day as an opportunity to announce plans for more than 20 large-scale renewable energy projects that will begin construction in New York throughout 2021. It is part of the first wave of nearly 11,000 megawatts of clean energy contracted to power the state. In addition, New York State Energy Research and Development Authority launched its fifth and largest land-based large-scale renewable energy solicitation to date, calling for 4.5 million MWhs of renewable electricity per year. Current projects and ongoing solicitations will help advance the state towards meeting its aggressive clean energy target that 70% of the state's electricity come from renewable sources by 2030.

ERCOT Energy Summary

  • If you missed it, watch the "ERCOT Recap of Winter Storm Uri, Summer Readiness and Legislative Update Webinar," which occurred April 29th. Please reach out to keith.poli@constellation.com if you have any additional questions.  
  • Temperatures were in the upper 70s to low 80s F in the beginning of the week April 26th, before declining by the weekend to the low 70s with load peaking in the mid 40s GW. Real-time prices averaged $26.54/MWh for the week of April 26th with its highest price at $244/MWh during hour-ending 2 on April 30 as wind was strong early in the week, averaging 17 GW early in the week but declining to 4 GW by May 2nd. 
  • May 3rd will be the last day of a recent warmup with temperatures forecasted to reach 82 F before a cold front moves in and drops temperatures to the mid 60s F. Load should reach 48 GW but decline to 39 GW by mid-week and will remain there most of the week. The forecast for wind generation is calling for an average output of ~13 GW on Monday and Tuesday and then dropping to 10 GW by mid week before rebounding later in the week to over 20 GW. Solar should be consistent over the course of the week.   
  • ERCOT has a new interim CEO, Brad Jones, who has 30-plus years of industry experience, including serving as former ERCOT Vice President of Commercial Operations from 2013-2014 and former Senior Vice President and Chief Operating Officer in 2015. He served as President and Chief Executive Officer of the New York Independent System Operator (NYISO) from 2015-2018. He is a past Chairman of the Edison Electric Institute’s Executive Advisory Committee and a board member for the Gulf Coast Power Association. He earned a Bachelor of Science in Mechanical Engineering from Texas Tech University and a Master of Business Administration from the University of Texas at Arlington.  
  • Last week, the Texas Senate passed an amended version of House bill (HB 16) that has several initiatives from banning wholesale pass-through products to auto renewal of customers who do not select a new retail provider. Under the Senate version of HB 16, if a customer fails to select a new retail electric product before the expiration of the customer's contract term with an existing retail electric provider, and their current Retail Electric Provider (REP) has provided the required renewal notices, the provider will be allowed to serve the customer through a default renewal product that the customer may cancel at any future single notice.  For larger customers, wholesale index products will be available but the customer will need to sign a customer affirmation acknowledging their acceptance of the product. The bill will likely have to go for reconciliation between the House and Senate versions before a final vote and then on to the Governor's desk. 

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • Springtime renewable production swamped the grid over the weekend as winds blew hard pushing turbines to near-annual high production at the same time solar generation was healthy and both Diablo Canyon units were running at full steam, adding to the excess generation hitting the grid. Real-time prices for Sunday averaged just under $8/MWh across the peak hours coming in about $5 less than the day-ahead auction settlements, as the mid-day solar hours all cleared below the zero line. The broad heat event that looked set for this week faded over the weekend as forecasts reduced the temperature departures to just a couple days of low 90s in the Central Valley, after which temperatures will drop the cooling-degree days (CDD) counts down to near zero for the LA Basin. The reduced demand allowed both PG&E and SoCalGas ample opportunity to inject molecules over the last seven days, with about 4 Bcf going into storage up north, bringing their system to 163 Bcf while SoCalGas is showing nearly 62 Bcf in the tank on Monday, a gain of nearly 3 Bcf on the week.
  • SoCalGas made headlines last week when they released an updated maintenance plan, which removed the most significant capacity restriction slated for this summer. Repair work on Line 4000, a main artery in SoCal’s Northern Zone, was scheduled to last from May through September, restricting capacity by 720 MMcf/day plus another 90 MMcf/day of associated flow at Needles-Topock. That maintenance project disappeared in last week’s update along with severe inventory restrictions at both their Goleta and Aliso Canyon storage fields. The increased flow capacity makes it easier for SoCalGas to maximize storage inflows and reduces concern for a gas supply crunch in SoCal this summer, which had been supporting summer and winter basis curves across the West since their March 24th maintenance update. It leaves open the question however as to what the status of L4000 is since the prior maintenance plan listed it as requiring “necessary remediation.” Power and gas forwards stayed steady as there are expectations of lower Rockies production and increased competition for Permian gas still hanging out there. The DSW and CAISO are cautiously eyeing pipeline expansions in Texas, which provide new options for producers to move gas to the Gulf Coast this summer where previously there were pipeline constraints heading east, meaning the only chance to bring gas to market was to point those molecules west.
  • In 2020, the PNW hydropower system benefitted from a lack of power demand due to economic shutdowns tied to COVID-19 and a weather pattern that kept temperatures at elevation well-below normal through the end of June. This delayed the snowmelt into July and early August. The gradual arrival of the snowmelt reduced what the reservoir operators had to spill, which was enough to support summer fish operations and allowed Bonneville Power Administration (BPA) to maximize flow through the powerhouses. Since extensive heat did not appear in the PNW until mid-August, there was plenty of water available for generation. The BC Hydro system was also in better shape, which increased power inflows to the region at the same time transmission lines curtailments to move the power into either the CAISO or DSW trapped production in the region and pressured Mid-C prices. As the colors on the left side of NOAA’s drought monitor map build in intensity each week, the 2021 hydro season is shaping up to be a different one. The Northwest River Forecast Center forecast for flows across the system continue to come in below average. Flow forecasts for the The Dalles Dam, one of the largest hydropower plants in the U.S. and one of the southernmost hydros on the Columbia River, are a major reference point for the market to gauge flows and power generation expectations. Although April-September waterflow forecasts for The Dalles Dam are in decent shape, currently running about 10% below average, the timing of the melt and how much could be lost are supporting Mid-C prices. Until better information arrives, it seems the market is reserving for the possibility early season heat accelerates the melt and a significant percentage of the water is lost to exceptionally dry ground absorbing it while the sudden arrival of water forces operators to direct flow to the spillways and reduce generation.

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Questions? Please reach out to our Commodities Management Group at CMG@constellation.com.