Weekly Energy Industry Summary

Commodity Fundamentals

Week of August 1, 2022

By The Numbers:

  • NG '22 prompt-month NYMEX closed at $8.28 /MMBtu on Monday, August 1, up $0.05/mmbtu on the day.
  • WTI '22 prompt-month crude oil closed at $93.89/bbl on Monday, August 1, down $4.73/bbl on the day.

Natural Gas Fundamentals - Bullish/Neutral

  • Prompt-month NYMEX natural gas settled at $8.28/MMbtu, August 1st posting a $0.05/MMbtu gain on the day. Natural gas traded down on Tuesday, August 2 in early-morning trading at $7.75/MMbtu, down $.53. A continued hot outlook for summer weather is supporting natural gas, however, production has gotten a boost in recent days, and this is providing the push to the downside in today's trading.  
  • Lower 48 production hit a record of 98 Bcf per day last week, Bloomberg reported, up 5% from last year. The bump in production is helping to keep a lid on what is still a tight supply/demand balance in the teeth of the summer air conditioning season.
  • While production is up, demand is up as well, with lower 48 gas demand on Monday at 75 Bcf, a 14% increase from the same period last year, Bloomberg reported.

Crude Oil - Neutral

  • Prompt month crude oil fell sharply on Monday, August 1st, down $4.73/bbl, settling at $93.89.
  • Gasoline prices also fell with prompt month futures down $0.115 per gallon on Monday, August 1.
  • Weekend release of China PMI figures sparked increased concern about weaker Chinese economic growth and energy demand.
  • OPEC plus indicated it may take some action to boost crude oil production at its regularly scheduled meeting on Wednesday.
  • The U.S. economy is in recession and the general slowdown is having a negative impact on crude oil pricing.

Economy - Neutral/Bearish

  • Two consecutive quarters of negative GDP growth place the U.S. officially into a recession.
  • Growth at U.S. manufacturing companies was its weakest in two years in July, but inflationary pressures showed signs of cooling as commodity prices eased, The Wall Street Journal reported.
  • The employment picture remains supportive as many open jobs remain unclaimed.
  • U.S. stocks closed slightly lower in August's first trading session.

Weather - Neutral/Bullish

  • A back and forth pattern with occasional heat spikes and cool downs will be the pattern from the midwest into the east over the coming two weeks.
  • Texas will continue to be very hot -- 95-100 in Houston -- 100-105 in Dallas -- for the coming two weeks.
  • The California coast will be mild.  Inland, temperatures will be in the 90s.

Weekly Natural Gas Report:

 
  • The Energy Information Administration (EIA) reported an injection of 15 Bcf into underground storage for the week ending July 22. Inventories are 2,416 Bcf, which is 12% less than the same period last year and 11% lower than the 5-year average.  
  • For the week ending July 19th, Baker Hughes reported 155 gas-directed rigs, up two from last week. Oil-directed rigs were at 599 for the same period, unchanged from the previous week.
Values reflect week ending July 29, 2022
Prices reflect week ending July 29, 2022

Weekly Power Report:

  • Forward prices in NYISO were up 6.2% week over week. All other regions saw higher prices ranging from 0.3% to 2.1%. 

Mid-Atlantic Electric Summary

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  • The Mid-Atlantic Region’s forward power prices were lower over the past week as slightly cooler forecasts along with an added supply of natural gas has turned back prices for the time- being.  After reaching a multi-year high last week, natural gas futures slid to a two-week low on Tuesday on record output and forecasts for less demand over the next two weeks than previously expected.  Historically lower natural gas injections into storage ahead of winter, despite the added supply associated with the Freeport LNG facility going down, continues to be a concern in the market. Forward power prices in the Mid-Atlantic region were -3% lower for the 2023-2027 term over the past week, with the Cal’23 term showing a  -1% decrease and the Cal’24-’27 terms experiencing a greater drop at -3%.  Compared to the all-time highs for that entire term, forward prices were -18% lower on average than those highs.  The index settlement prices continue to be higher year-over-year with the increased summer heat.  Final day-ahead index power prices for July in West Hub averaged 87.40/MWh which was +143% higher than the July average from a year ago, while the Eastern Hub settled at $89.73/MWh, which is +157% higher than July’s average last year.
  • New Jersey Surpasses 4 GW of Installed Solar - The Board of Public Utilities (BPU) announced that New Jersey recently surpassed 4 GW of installed solar power, enough to provide electricity to over 500,000 New Jersey households annually.  There are now more than 157,000 solar installations statewide, and it is estimated that solar capacity in the State will double in the next four years.  The BPU plans to expedite its scheduled annual review of solar incentive levels in the Solar Successor Program Administrative Determined Incentive Program.  BPU staff’s expedited review will seek public comment and may result in recommendations to increase or decrease the ADI Program incentive levels.

Great Lakes Electric Summary

  • The Great Lakes Region forward power prices were lower over the past week as slightly cooler forecasts along with an added supply of natural gas has turned back prices for the time- being.  After reaching a multi-year high last week, natural gas futures slid to a two-week low on Tuesday on record output and forecasts for less demand over the next two weeks than previously expected.  Historically lower natural gas injections into storage ahead of winter, despite the added supply associated with the Freeport LNG facility going down, continues to be a concern in the market. Forward power prices in the GLR region were -3% lower for the 2023-2027 term over the past week, with the Cal’23 term showing a -2% decrease and the Cal’24-’27 terms experiencing a greater drop at -4%.  Compared to the all-time highs for that entire term, forward prices were -18% lower on average than those highs.   The index settlement prices continue to be higher year-over-year with the increased summer heat.  Final day-ahead index power prices for July in COMED averaged $83.18/MWh which is +143% higher than the July average from a year ago, while the monthly average settlement price for ADHub was $87.91/MWh or +138% higher than July of last year.  In Michigan, day-ahead index power prices settled at $87.81/MWh which is +123% higher than the July average from a year ago, while the average settlement price in Ameren was $86.34/MWh or +132% higher than last July of 2021.
  • FERC Denies Rehearing of PJM’s Proposed Reserves Market Changes - In March 2019, PJM sought FERC approval of changes to its reserves markets and operating reserve demand curves (ORDC) that would have increased the frequency of reserve events and the prices paid during such events.  FERC agreed with PJM’s proposed changes in May 2020 and denied rehearing in November 2020.  Several parties appealed the matter to the D.C. Circuit Court of Appeals (D.C. Circuit) and, in August 2021 under the leadership of newly appointed Chairman Glick, FERC took a voluntary remand of the appeal (i.e., the matter was removed from the D.C. Circuit for further FERC consideration).  In December 2021, FERC reversed its prior May 2020 order and November 2020 rehearing order and rejected PJM’s proposed changes, finding that PJM failed to make the requisite showing that the prior reserves mechanism and ORDC was unjust and unreasonable.  Thus, FERC required PJM to revert back to that prior ORDC mechanism.

Northeast Energy Summary

  • The Day-Ahead index average for the month of July in New England wholesale power prices finished at an all-time high for all Julys at $89.70, up 139% from last July and $59.39 higher than the previous 5-year average. A combination of a scorching hot middle-July and elevated regional gas prices are the likely culprits to the expensive electricity. Algonquin (the regional price hub for New England) natural gas prices for July averaged $7.52/MMBtu, a quarter higher than June’s average with the region seeing a couple of days of pricing at $17/MMBtu. As of this writing we’re seeing expensive carryover to August with month-to-date prices averaging $97.18/MWh. The renewed elevation in pricing follows a softened June which averaged $68.51/MWh after an uncharacteristically high May which lacked strong heating or cooling demand that settled at $76.61/MWh. A continuation of supportive spot prices into the region should yield comparatively high settles for the months ahead and into fall. Winter (Jan/Feb 2023) forward gas prices have seen all-time highs around $40/MMBtu which would equate to catastrophically (~$200-300/MWh) high index power prices should those forwards be realized. All customers exposed on index should understand those risks heading into winter and speak to their Constellation representative.
  • This Thursday, August 4’s peak demand value is expected to make a run with the current year-to-date unofficial preliminary peak demand value set on July 20 at 24,323 MW. High temps of 95 in Boston and 97 degrees Fahrenheit in Hartford has the ISO New England forecasting a peak value of 24,500 MW. Customers looking to curtail load in the Peak Response program will receive an email the evening before and morning of if the Constellation Products team deems it prudent to call a regional notification to voluntarily reduce load. 
  • On July 27, Governor Hochul announced the release of New York's third competitive offshore wind solicitation, administered by the New York State Energy Research and Development Authority (NYSERDA), to procure at least 2,000 MW of offshore wind energy in support of the state’s goal of 9,000 MW of offshore wind by 2035.  New York currently has 4,300 MW of offshore wind procurements under contract, bolstered by a $500 million investment in ports, manufacturing and supply chain infrastructure.  Key elements of Thursday’s solicitation include requirements of high voltage direct current (HVDC) "meshed ready" transmission configurations and emphasis on in-state manufacturing with U.S. iron and steel purchase requirements, along with a preference for repurposing existing downstate fossil electric generation infrastructure.  New York’s first offshore wind project, South Fork Wind Project, is slated to come online in Q4 2023.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • The forecast is calling for the cooler weather to last the balance of the week before heat starts to penetrate the region again. Over the weekend, the models extended the below normal bias in the forecast for the DSW through the end of this week. High in Vegas look unlikely to break 95o and Phoenix should stay right around the century mark. Despite the lower cooling degree day (CDD) count, the flow of MWh on the interties has been seen pulling out of SP15 during the evening peak, a good indication of how tight the resources are with our neighbors to the east. So long as the heat stays moderate and we continue to skate through the summer without an outage on the lines or with a major generator, prices should stay reasonable. Similar thought around the hobbled El Paso Pipeline L2000 which is coming up on the one-year anniversary of the rupture in the desert. The latest El Paso maintenance schedule shows the reduction at the Cimarron compressor remaining in place through the end of the month. So long as the SoCalGas sendouts remain in the low 2 Bcf/day ballpark, the need for imported molecules on this line remains low and index settles for gas will stay reasonable. This coming weekend, the Redwood path up north gets cut to 1.7 Bcf, a loss of 0.3 Bcf through the end of the month with additional outages running into October. This puts PG&E storage draws as the marginal molecule on the system.Both Lake Powell behind Glen Canyon Dam and Lake Mead behind Hoover Dam are facing historically low elevations that are threatening hydropower generation in the DSW. Recent satellite photos from NASA show the drastic change at Lake Mead from 2000, the last time the lake was full, to 2021, and on to 2022. The changes are staggering and the impacts for millions who depend on the water for agriculture and power are even more so. At the beginning of this year, a Tier 1 Shortage was announced, meaning usage cuts for the states in the Lower Basin of the Colorado River. Later in spring, the lake passed another important marker and began on the path toward a Tier 2 Shortage being called. This would bring even more usage cuts for the Lower Basin states and the mega-cities of Las Vegas, Los Angeles, and others. Future summer reliability provided by the ability of these large hydro facilities to shape power generation around the ebbs and flows of solar and wind resources requires that Lakes Mead and Powell stay above the minimum level for power generation. Of the two reservoirs, Lake Powell is skating closer to the edge and will end 2022 around 3519 ft in elevation, just 29 ft above the minimum needed to operator the hydro generation. The Bureau of Reclamation which operates the dams has gone to great lengths to move water through their system of reservoirs and rivers to keep Lake Powell’s elevation from falling below what’s known as “minimum power pool” level. Even more intervention would be needed to ensure power generation at Glen Canyon next summer if the winter of 2022 – 23 fails to deliver significant water. It’s a little early to try and read the cards on the upcoming hydro year, but if we just play the recent trend in poor water years and summer heat, it’s not clear the Bureau can save Glen Canyon again next year. 

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