Weekly Energy Industry Summary

Commodity Fundamentals

Week of January 23, 2023

By The Numbers:

  • NG '22 prompt-month NYMEX settled at $3.45/MMbtu, up $.27/MMbtu on Monday, January 23.
  • WTI '22 prompt-month crude oil closed at $81.58/bbl., down $.07/bbl., on Monday, January 23.

Natural Gas Fundamentals - Neutral

  • Prompt month NYMEX natural gas settled at $3.45/MMbtu on Monday, January 23, up $.27/MMbtu.
  • Prompt month natural gas traded down in the Tuesday morning session at $3.37/MMbtu.
  • The weather for the last week of January is turning more seasonal after a three-week period of much above normal temperatures.
  • January is set to be a top-five warmest-since-1950 in heating-degree days and has been the major force in the sell-off through the month.
  • The first half of February appears to be colder than normal in the upper Midwest, but the South and Southeast look above normal.
  • The Freeport LNG export terminal requested approval from the Federal Energy Regulatory Commission to restart operations.  If approved, operations will begin to ramp up during the first week of February and through the remainder of the month.  Freeport can deliver 2.3 Bcf/day of natural gas at full capacity.

Crude Oil - Neutral/Bullish

  • Prompt-month crude oil settled at $81.58/bbl on Monday, January 23, down $.07/bbl.
  • China is the driver for crude oil pricing now and through 2023.  If China opens fully this would represent 1.9 million barrels per day of additional global demand for crude oil and significantly tighten the global supply/demand balance.
  • Russia has found a buyer for its oil, and it is India.  Approximately 70% of January oil from the Urals is heading to India, Reuters reports.
  • In December, India's imports of Russian oil jumped to a five-month record high, Reuters reported.
  • The U.S. is reviewing the cancellation of a planned sale of crude oil from the SPR as the Administration shifts to refilling the reserve after a year of record releases.

Economy - Neutral

 
  • Employment through staffing firms fell for five consecutive months, a sign of a cooling labor market, The Wall Street Journal reported. 
  • Business in the Eurozone hit the ground running in January, a sign that the outlook for the global economy may be improving.
  • The Fed is setting a course for a milder rate rise in its upcoming meeting.
  • Fed officials could begin deliberations whether to pause rate increases this spring, The Wall Street Journal reported.
  • China's economic reopening complicates the global fight against inflation.  A stronger Chinese economy would boost demand for commodities but could also ease supply-chain bottlenecks, The Wall Street Journal reported.

Weather - Bullish

  • The last week of January is shifting to a colder solution in the Midwest.
  • The first week of February is going below normal in the Midwest and Northeast.
  • A series of storms are forecast for next week from Texas to New England. 
  • There is cold air building in Canada that can move into the lower 48. Though this cold Canadian air is not as intense as the December blast, it will provide a major boost to heating demand in key market regions.
  • The west is largely dry.

Weekly Natural Gas Report:

 
  • The Energy Information Administration (EIA) reported a withdrawal of 82 Bcf out of underground storage for the week ending January 13. Inventories are 2,820 Bcf, which is 19 Bcf less than the same period last year and 34 Bcf lower than the 5-year average.  For the week ending January 10, Baker Hughes reports 150 natural gas rigs in operation, down four (2) from the prior week.  Crude oil rigs were reported at 623, up three (5) for the same period.
Values reflect week ending Jan. 20, 2023
Prices reflect week ending Jan. 20, 2023

Weekly Power Report:

  • Forward prices fell week over week in all regions. CAISO saw prices fall between 10.1%-12%. PJM saw prices fall between 0.9%-2.3%, MISO saw prices fall between 1.2%-2.1%

Mid-Atlantic Electric Summary

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  • The Mid-Atlantic Region’s forward power prices continue their slide from December as warmer than normal temperatures and lower heating demand has caused both natural gas and power prices continue to persist through much of January.  The continuous delay in the start to the Freeport LNG export facility, which strands more than 2 Bcf/d of natural gas in the US market for use here, has also contributed to the downward slide over the past couple of months.  The Mid-Atlantic forward electricity prices for the 2024-2027 term were -2% lower, on average, over the past week and -8% lower over the past month, but still +24% higher over the past year.  Compared to the all-time highs, that term is -17% off the highs on average.  Index prices in January are considerably lower than in December due to the somewhat benign temps for the region this month.  In West Hub, the average monthly settlement price thus far in January is $39.28/MWh or -56% lower than the previous month’s average, while the settlement average in the Eastern Hub is $33.38/MWh or -66% lower than December’s average last month.
  • PJM Planning Committee Endorses Compromise to Address Intermittent Capacity Accreditation - On 2/10, the PJM Planning Committee endorsed a compromise proposal to address concerns about the capacity accreditation of ELCC (i.e., intermittent wind/solar) resources following a year of contentious debate.  The proposal, which was the only one of six packages to earn majority support, passed with 82% in favor.  The compromise permits existing intermittent resources to sell their current levels of accredited capacity subject to available transmission system “headroom” to support deliverability for the year.  Such conditional sales will only be available for about four years as the resources will need to enter the interconnection queue to get permanent CIRs to support their increased sales.

Great Lakes Electric Summary

  • The Great Lakes Region forward power prices continue their slide from December as warmer than normal temperatures and lower heating demand has caused both natural gas and power prices continue to persist through much of January.  The continuous delay in the start to the Freeport LNG export facility, which strands more than 2 Bcf/d of natural gas in the US market for use here, has also contributed to the downward slide over the past couple of months.  The GLR forward electricity prices for the 2024-2027 term were -1% lower, on average, over the past week and -11% lower over the past month, but still +21% higher over the past year.  Compared to the all-time highs, that term is -16% off the highs on average. Index prices in January are considerably lower than in December due to the somewhat benign temps for the region this month.   In COMED, the average monthly settlement price thus far in January is $33.35/MWh or -47% lower than the previous month’s average, while the settlement average in the AdHub is $37.53/MWh or -54% lower than December’s average last month.  In Michigan, the average monthly settlement price thus far in January is $37.16/MWh or -43% lower than the previous month’s average, while the settlement average in the Ameren is $35.37/MWh or -45% lower than December’s average last month.
  • MISO Releases First Preliminary 23/24 Seasonal PRA Data - On 1/17, MISO released its first estimate of resources and load requirements by season for the 23/24 planning year.  The planning resource auction (PRA) will be conducted at the end of March 2023 and will be the first one conducted under MISO’s new seasonal paradigm. Initial takeaways from this first data release suggest that MISO Zone 7 (MI) and the rest of the MISO north/central zones may clear at the cost of new entry (CONE) for Summer, Fall, and Spring seasons.  In addition, Zones 8 through 10 in MISO South may also be at or near CONE in the Winter season. MISO plans to release refinements to this data roughly every two weeks leading up.

Northeast Energy Summary

  • On December 30, the Department of Public Utilities (DPU) approved 20-year contracts for Commonwealth Wind and Mayflower Wind, despite Avangrid’s request first to renegotiate and then cancel the contracts.  The stated commercial operation date for Commonwealth Wind’s 1,200 MW project is 11/1/27, and for Mayflower’s 400 MW project is 3/30/28.  Commonwealth Wind, however, has repeatedly stated it cannot build the project because the prices in the contract are now too low to gain financing.  The DPU dismissed Avangrid’s arguments, saying state law requires that the long-term contracts merely need to “assist” the financing of the projects – not “guarantee” it.  Two weeks prior, Avangrid had asked the DPU to walk away from the contracts entirely and re-bid the project in the next offshore wind RFP, anticipated this spring.  The state’s utilities (Eversource, National Grid, and Unitil) opposed the motion as well as Avangrid’s attempts to re-open negotiations on the contracts.  Avangrid has indicated it may appeal the decision.  If so, the adjudicatory process would move from the DPU to the Supreme Judicial Court.  The Commonwealth Wind contract includes a combined price of $47.68/MWh on a nominal levelized basis, escalating at 2.5% a year for 20 years. The price in the final year would be $76.22/MWh, according to the DPU order.  The Mayflower Wind contract offered a combined price of $76.73/MWh, which will remain fixed for 20 years. 
  • New York State Senate Issues Report on Utility Pricing Failures - Recently, Senator James Skoufis, Chairman of the Senate Committee on Investigations and Governmental Operations, released a report raising concerns and recommendations for improving the utility landscape.  The probe examined the state's six major utilities — Central Hudson, Con Edison, Orange and Rockland Utilities, National Grid, NYSEG, Rochester Gas & Electric and PSEG Long Island — based on the way most New Yorkers purchase and are provided with power and heating.  The report found issues with energy supply hedging practices and billing reconciliations, a lack of competition and accountability, flawed customer notices and utility communications, and systemic billing issues. The report recommended a number of solutions to fix problems highlighted in the investigation, including strengthening oversight of utility hedging practices; standardizing customer communications; limiting retroactive billing; conducting new annual audits; increasing transparency of energy supply purchases by utilities; prohibiting service shutoffs when monthly volatility reaches a certain threshold; and requiring energy service companies provide six months of notice before pulling out of an area or face fines and penalties.  The report also recommended passing a handful of bills that limit estimated billing and require utilities to reimburse customers, with interest, for overestimates that result in overpayments; seek to ensure low-income and vulnerable populations are appropriately enrolled in customer assistance programs; and municipalization of most utility functions in the state.  Lawmakers have become increasingly critical of New York utility companies in recent years for inconsistent billing practices and for their ability to restore power after major storms.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • California has seen few if any polar events descend upon the state in recent years. This winter has been different in that temperatures have averaged below normal nearly nonstop since late November. Prices moved higher in December 2022 and have remained three times as high in January 2023 as they were in January 2022. There are several reasons for this; the bleak situation with the PNW hydro is a large factor. While California hydro has been stealing the headlines, the PNW is the one that moves the needle for the entire region. The volume runoff forecast for the Columbia River (January through July at The Dalles) is down to 78% of normal which puts it into the #8 slot in the Top Ten lowest hydro years since 1970! This has translated into about 6,000 MW of lower hydro production in January 2023 compared to January 2022 with production falling from 17,000 MW in 2022 to 11,000 so far in 2023. Low hydro lifts demand for natural gas. That has pushed up Western U.S. gas prices which have pushed up electricity prices. More gas burns will increase carbon emissions which will have impacts on both the California and the Washington carbon markets. Prices across all energy commodities will be impacted by this intersection of events. Understanding the linkages between and across these markets is key to navigating these volatile times. Little will change this week. The LA Basin and Central Valley this week will be back to overnights in the 40s and daytime highs in the 50s. The DSW cities will be in the 30s which will keep their Res/Com heating demand elevated and force SoCalGas and PG&E to pay up for imports.
  • A couple notable pipeline changes are on the horizon. PG&E updated their Prospective Maintenance roster late last week, and there were a few outages added to the summer schedule, the most impactful will occur on the Redwood Path in March and then in August and October. The cuts are pertinent in March due to the consistent and ongoing draws from storage this winter. Typically, PG&E can transition to injections by the middle of March. But that may be hampered this year due to a drop in Redwood capacity from 2.2 to 1.6 BCF on the 17–27th. Beyond the March outages, the schedule is clear until August. Until August arrives there are few Redwood impairments on the current schedule. Capacity should stay over 2.1 Bcf which will at least provide the capacity for storage builds. The past two years have seen significant cuts in pipe flows into the PG&E system due to maintenance. Assuming temperate weather, increased hydro flows and strong wind and solar output should assist in the storage recovery.
  • In SoCalGas territory, the outlook is bright that the beleaguered El Paso Line 2000 will return to normal operations soon. El Paso Pipeline recently posted a critical notice pertaining to the restricted flows along L2000.
    • EPNG anticipates completing the physical work on Line 2000 in accordance with PHMSA's corrective action order (CAO) and EPNG's remedial work plan (RWP) before the end of January, and then will submit a request to PHMSA to lift the pressure restriction so that the line can return to commercial service. Upon receipt, PHMSA will need time to review the request. Accordingly, EPNG will update this posting when it has submitted its request to PHMSA to lift the pressure restriction. Any specific questions related to operationally available capacity or unsubscribed capacity along this path should be directed to your marketing representative.
  • It seems they are prepared to submit the remediation paperwork to the PHMSA for review and approval to resume flowing at normal system volume and pressure. When operational, we should see Permian flows to the state increase and assist SoCalGas with rebuilding their storage inventories after the heavy draws thus far this season. Remains to be seen whether this will reduce the amount of gas SoCalGas can store in Aliso Canyon. Their reduced import capability supported the case for increased storage in the load pocket, that may be a tougher sell to the CPUC this coming winter if their import ability is improved and the CPUC’s long term goal is to reduce gas storage at Aliso.

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