Weekly Energy Industry Summary
Commodity Fundamentals
Week of March 25, 2024
By The Numbers:
- NG '24 prompt-month NYMEX settled at $1.66/MMbtu, down $.04/MMbtu, on Monday, March 25.
- WTI '24 prompt-month crude oil settled at $81.95/bbl., up $1.32/bbl., on Monday, March 25.
Natural Gas Fundamentals - Neutral
- Natural gas storage inventories remain bloated.
- EIA estimates natural gas inventories in storage at nearly 2.3 Tcf at the end of March.
- Natural gas production continues to trundle down having recently broken the 100 Bcf/d mark.
- There is no weather solution for the bulls at this time.
Crude Oil - Neutral/Bullish
- OPEC announced it is extending its 2 million barrel per day production cut through June of this year.
- Russia continues to deliver oil to North Korea in defiance of UN sanctions.
- A recent Goldman Sachs report expects general commodity prices to rise 15% in 2024.
- EIA has revised its price forecasts on crude oil and petroleum products upward following OPEC+ production cuts.
Economy - Neutral
- U.S. home sales jumped 9.5% in February.
- That leaves interest rates unchanged and hints at future cuts.
- Hiring boom continues in February but wage gains slowed down as U.S. added 275,000 jobs.
- 10-year treasury ticked higher as investors weigh economic data.
- Two year yield slips below 4.6% as Fed continues to signal lower rates ahead.
- Wholesale inflation rose 0.6% in February, much more than expected.
Weather - Neutral
- A chunk of very cold air is in place over the Northern Plains.
- In contrast, there is warmer air moving up the East Coast from South.
- Between the two air masses, the U.S. will see strong storms as cold air moves eastward.
- An active storm track in the West will move across the northern tier next week where temperatures will stay below normal.
- South of the storm track we’ll see unseasonable warmth across the South.
Weekly Natural Gas Report:
- Inventories of natural gas in underground storage for the week ending March 15, 2024 are 2,332 Bcf; an injection of 7 Bcf was reported for the week ending March 15, 2024.
- Gas inventories are 678 Bcf greater than the five-year average and 411 Bcf greater than the same time last year.
Weekly Power Report:
Mid-Atlantic Electric Summary
- The Mid-Atlantic Region’s forward power prices continue to inch higher through 2028. The front of the price curve (2024-2025) seems to be more influenced by bearish natural gas fundamentals while the back of the curve (2026-2028) seems to be more influenced by electricity reliability concerns associated with a changing generation fuel mix. Warmth in the Midwest will move eastward over the next couple of days as colder air comes down into the Rockies and Plains. This chilly air will move across the North and East next week as warmth returns to the South and parts of the Midwest. Power forwards for the 2025-2028 term in the Mid-Atlantic region were +2% higher over the past week and 7% higher over the past month. The month-to-date, day-ahead average settlement price for March in West Hub is $25.71/MWh or +3% higher than February’s settlement price average, but -12% lower than last year at this time.
- Significant Transmission Expansion Continues at PJM - PJM published the Regional Transmission Expansion Plan (RTEP) activities from 2023 which included Board approval of 48 new baseline reliability projects totaling $6.6 billion. Over $5 billion of those projects address reliability violations driven by data center load growth in the Dominion and Allegheny Power zones as updates to the 2022 RTEP. Additionally, PJM received over 5.8 GW of deactivation notices from mostly thermal resources while interconnection requests are almost exclusively from renewable and storage resources. The PJM Board approved 93 network transmission projects estimated at $180 million to enable reliable delivery of new generation seeking interconnections. During the March Transmission Expansion Advisory Committee, PJM presented the need to already update the 2023 RTEP to address major load growth in the Columbus area and provided the timeline as the 2024 RTEP cycle begins.
Great Lakes Electric Summary
- The Great Lakes Region’s forward power prices continue to inch higher through 2028. The front of the price curve (2024-2025) seems to be more influenced by bearish natural gas fundamentals while the back of the curve (2026-2028) seems to be more influenced by electricity reliability concerns associated with a changing generation fuel mix. Warmth in the Midwest will move eastward over the next couple of days as colder air comes down into the Rockies and Plains. This chilly air will move across the North and East next week as warmth returns to the South and parts of the Midwest. Power forwards for the 2025-2028 term in the GLR region were unchanged for 2024-2025 and +2% higher for 2026-2028 over the past week. The entire froward strip was +7% higher over the past month. The month-to-date, day-ahead average settlement price for March in Michigan is $21.96/MWh or -12% lower than February’s settlement price average, as well as -24% lower than last year at this time. In Ameren, the month-to-date, day-ahead average settlement price for March is $20.80/MWh or -11% lower than February’s settlement price average, as well as -24% lower than last year at this time
- Court of Appeals for the Third Circuit (Third Circuit) Vacates FERC Orders Allowing PJM to Change Capacity Market Rules for Delivery Year 2024/25 - As previously reported, in mid-December 2022, PJM was dissatisfied with the results produced when it ran its capacity auction algorithm to clear capacity for the 2024/25 delivery year. Certain planned generation in the DPL-South zone that PJM expected would offer did not actually offer, resulting in what PJM called an “anomalous” outcome for that zone -- one that “would be more than four times” what it would have been had those planned resources not been considered in the auction planning parameters. PJM withheld auction results and asked FERC to accept a change to market rules to remove the impact of the planned resources that were not offered. In January 2023, FERC granted PJM’s request, and PJM reran the 2024/25 auction in February 2023 under the new rules and posted the results, with DPL-South clearing at $90.64 under the new rules. On 3/12, the Third Circuit Court of Appeals vacated the FERC orders as applied to the 2024/25 auction. The court left PJM’s rule change in place for subsequent auctions (which have not yet run), given that the rule change is prospective with respect to auctions not yet run. The Court emphasized the need for predictability in markets finding that “stable markets depend on stable rules” and that if there is no assurance about what rules may apply, confidence in markets will be eroded which “may ultimately harm consumers.”
Northeast Energy Summary
- Last week, ISO-NE published its 2024 Regional Electricity Outlook. The report is based on four pillars which provide a framework for discussing the region’s needs as it transitions to a clean energy future. The first pillar, Clean Energy, reviews dramatic changes to the region’s power system anticipated in the decades ahead. Driven by incentives and public policy, wind and solar generation and storage (primarily short-duration batteries) currently account for more than 99% of proposals in the ISO’s interconnection request queue. While not all projects in the queue are ultimately built, by 2040, ISO is expecting 1 million non-dispatchable weather-dependent generators representing an additional 28,000 MW of solar and 17,000 MW of offshore wind.
- Additionally, the ISO forecasts that electrifying the heating and transportation sectors will significantly increase electricity demand. Over the next 15 years, the region needs to add almost twice as much new generation as it added in the last 25 years. In the second pillar, Balancing Resources, the ISO highlights that dispatchable generators, energy storage and demand response are crucial to ensure equilibrium as intermittent resources see swings in energy production, warning that underinvestment in the next generation of balancing resources and services represents a longer-term risk to reliability.
- Under the third pillar, Energy Adequacy, the ISO describes risks if expected renewable resources do not materialize, needed transmission is not built, or fuel supply chains are disrupted. Electrification of the transportation and heating sectors will drive demand in the years ahead, while extreme weather caused by climate change will increasingly affect the productivity of energy resources and could threaten the stability of the grid as a whole. Ensuring that New England has adequate energy will require both responding to increased demand and preparing for low-probability, high-impact weather events. The ISO concludes that, in the near term, natural gas will remain the region’s leading fuel source for electricity generation and states that maintaining sufficient levels of stored fuel during winter is critical, so the region has dispatchable suppliers of electricity — whether or not they are carbon-emitting — to maintain reliability during periods of high winter electricity use.
- Robust Transmission is the ISO’s final pillar necessary to support the transition. The ISO states that cumulative costs to upgrade the transmission system could reach $17 billion to reliably serve a 51 GW peak in 2050, or $26 billion to support a 57 GW peak. To reach those levels, the region’s annual investment in transmission reliability projects over the next 26 years would need to roughly keep pace with or exceed the average spent each year over the past two decades. ISO concludes its report by committing to work with stakeholders to meet the needs of the grid, safely and reliably, during the transition to a clean energy future.
- On March 13, New York's Assembly and Senate released their one-house budget proposals in response to Governor Hochul’s proposed $233 billion Executive Budget released earlier this year. The proposals reflected an annual proposed budget of $245.8 billion and $246.2 billion, respectively. Energy plays a relatively minor role in the policy initiatives outlined in both the legislature and Hochul’s budget proposals. New York continues to pursue an aggressive agenda leading the nation in transitioning to a sustainable green energy economy. However, consumer affordability is now a recurring theme reverberating in Albany. Assembly and Senate Democrats have accepted the bulk of Governor Hochul’s plans to reshape and accelerate the state’s siting of large-scale transmission lines. However, the legislature has included additional protections for farmland and more public input on regulations. Additionally, both houses included an extension of the New York State Energy Research and Development Authority’s (NYSERDA) Build-Ready Program, designed to identify sites suitable for large-scale renewable energy projects to eventually be auctioned off to private energy developers, from April 2024 to April 2030. The Affordable Gas Transition Act, which supports gas system transition planning, including the elimination of the so-called “100-foot” rule, protecting utility customers from bearing the cost of unwarranted investment in fossil fuel infrastructure, was included in the Senate’s one-house budget proposal and excluded from the Assembly’s. Negotiations are underway and the legislative proposals kickoff a three-week marathon as New York moves to approve its annual spending plan by April 1. The 2024 legislative session is scheduled to conclude in June.
ERCOT Energy Summary
CAISO, Desert Southwest and Pacific Northwest Energy Summary
- Winter is locked in across the West as cold lingers and temps look mostly near to below normal in spots through the remainder of the week. The models support a generally cooler than normal lean across much of the Western half of the nation heading into the first week of April. The cooler weather starts with the overnight lows dipping down into the upper-40s in SoCal while the daytime highs aim for the mid-60s with a couple of days dropping into the upper-50s. NorCal is bit colder in the front, but the post-Easter timeframe is such that the skies clear and daytime should hit the 70s. As far as precipitation is concerned, the storm track looks active into the West, especially into California heading into April where minor, but not all that meaningful snowpack gains will be seen. Since renewables have an outsized impact on the grid this time of year, strong wind today and tomorrow across the PNW will give way to lower generation for the balance of the week and into this upcoming weekend. Hydro flows will pick up as overnight that remain above freezing in the Sierra become more prevalent and later season precipitation is likely to remain in liquid form. The renewable landscape continues to deliver low heat rate levels across the state, which will impact power burns on a forward basis.
- The consecutive High Operational Flow Order (OFO) streak that PG&E had running ended over the weekend while SoCalGas surprised by posting Low OFO notices on Sun and Mon as the netting of imports to demand saw them need to pull tiny amounts out of the storage tanks. SoCalGas demand continues to reflect the colder overnight lows as current daily needs sit just under 2.5 Bcf. This number would be higher if not for congestion during the peak hours trapping the excess solar generation megawatts in SP15 and reducing power burns. A stormy weather pattern is going to be rolling through in the coming days, so the expectation is for solar generation to fade towards the end of the week like the popularity of Zoom calls, and wind production looks to stay strong. From a price standpoint, the city gates continue to be flush with gas where even the colder weather/higher demand within SoCalGas territory isn’t enough to pull daily settles above the $2.00 per MMBtu level.
- The CAISO day ahead auction results continue to indicate that SP15 is an island when it comes to the supply/demand balancing as flow for today (Tuesday 3/26) during the peak period will be the third day in a row day ahead prices cleared below the $0 per MWh waterline. The entire sixteen-hour period cleared at -$9.71 MWh for today’s flow as power demand numbers wane on every passing day. The issue we see in the coming days is that the PNW will need to find a home for its increased wind and hydro generation thus adding volume to a grid that is sending a price signal most hours that nothing else is needed.
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