Weekly Energy Industry Summary
Week of September 26, 2022
By The Numbers:
- NG '22 prompt-month NYMEX closed at $6.90 /MMBtu on Monday, September 26, up $.075/MMbtu.
- WTI '22 prompt-month crude oil closed at $76.71/bbl on Monday, September 26, down $2.03/bbl.
Natural Gas Fundamentals - Neutral/Bearish
- Prompt month NYMEX natural gas settled slightly higher on Monday at $6.90/MMbtu after posting a 10 week low.
- Prompt month NYMEX natural gas opened Tuesday morning finding support at $7/MMbtu.
- Natural gas production continues to climb, averaging 98.6 Bcf/day, up .9Bcf per day month-over-month.
- Weather in general is largely not very supportive of gas demand as things are reasonably seasonal in most areas of the country excepting the interior of California which remains well above normal.
- Hurricane Ian will not disrupt LNG exports.
Crude Oil - Neutral
- Prompt-month crude fell sharply on Monday, September 26, settling at $76.71/bbl, down $2.03/bbl.
- Tuesday morning trading (Sept 27) saw crude recover a bit trading at $77.90/bbl, up $1.17/bbl.
- A strong U.S. dollar is placing downward pressure on crude oil and other commodities.
- The potential for a global recession led by Europe and China is placing downward pressure on demand for oil and forward expectation for demand in general.
Economy - Bearish
- The FED raised rates .75 basis points in last Wednesday's open meeting.
- Stocks sold off hard on the FED news with the Dow Jones Industrial average shedding almost 1700 points since last week closing at a more than two-year low.
- The thirty-year bench-mark mortgage rate pushed above 7%.
- Expectations for lower profits and earnings are placing downward pressure on equities markets.
Weather - Neutral/Bearish
- Hurricane Ian is a category 3 hurricane off the western tip of Cuba this morning.
- Ian is expected to ramp up to a category 4 hurricane.
- Ian is threatening nearly the entire west coast of Florida and a large section of the panhandle.
- Coastal damage and severe flooding is expected. The storm will move into the interior Southeast and Mid-Atlantic later this week dumping large amounts of rainfall.
- The west remains unseasonably hot with interior California temperatures in the 90s.
- Most of the continental U.S. is seasonal relative to temperatures.
Weekly Natural Gas Report:
- The Energy Information Administration (EIA) reported an injection of 103 Bcf into underground storage for the week ending September 16. Inventories are 2,874 Bcf, which is 6% less than the same period last year and 10% lower than the 5-year average. For the week ending September 13, Baker Hughes reported 162 gas-directed rigs, down 4 from last week. Oil-directed rigs were at 599, up eight (8) for the same period.
Weekly Power Report:
- Forward prices were down week over week in all regions besides PJM Ohio, which experience a 4% increase. Forward prices in ERCOT were down between 10.7-11.3%
Mid-Atlantic Electric Summary
- The Mid-Atlantic Region’s forward power prices continue to trend downward with natural gas prices as lower cooling demand, higher production and mounting inventory storage levels become prominent drivers in the market. U.S. natural gas futures concluded the fifth consecutive week of declines and a two-month low on softer fundamentals in the market. Forward power prices in the Mid-Atlantic region were -5% lower for the 2023-2027 term over the past week, with the 2023 term lower by -8% and the 2027 lower by -4%. Compared to the all-time highs, forward prices for that term are -8% lower than the highs, with the front-end of the price curve -13% lower and the back-end, -4% lower. Year-over-year the forward terms are still +69% higher, on average, for the entire term. The natural moderation in temperatures coming-out of the summer peak demand has index prices continuing to drop. The month-to-date day-ahead index settlement for September in West Hub is averaging $78.14/MWh thus far, or -20% lower than last month’s average but still +73% higher than the September average from a year ago.
- Governor Murphy Signs Executive Order Increasing Offshore Wind Goal to 11,000 MW by 2040 - On 9/21, Governor Phil Murphy signed Executive Order No. 307, increasing New Jersey’s offshore wind goal by nearly 50% to 11,000 MW by 2040. The order, which increases the state’s current goal of 7,500 MW, also directs the Board of Public Utilities (BPU) to study the feasibility of increasing the target further. So far, the state has approved building 3,700 MW to be generated by three projects off the New Jersey coast, but none yet have been built. New Jersey’s first solicitation took place in 2019 and saw the award to Ørsted’s 1,100 MW Ocean Wind project to be built 15 miles off the coast of Atlantic City followed by a combined award of 2,658 MW of offshore wind capacity to EDF/Shell’s Atlantic Shores Offshore Wind and Ørsted’s Ocean Wind II projects, bringing the state’s total planned capacity to over 3,700 MW. The BPU plans to issue another solicitation seeking to build 1,200 MW in the first quarter of 2023 with more to follow in 2024 and 2026. The first wind farm is expected to be operating by mid-decade.
Great Lakes Electric Summary
- The Great Lakes Region forward power prices continue to trend downward with natural gas prices as lower cooling demand, higher production and mounting inventory storage levels become prominent drivers in the market. U.S. natural gas futures concluded the fifth consecutive week of declines and a two-month low on softer fundamentals in the market. Forward power prices in the Great Lakes region were -4% lower for the 2023-2027 term over the past week, with the 2023 term lower by -7% and the 2027 lower by -3%. Compared to the all-time highs, forward prices for that term are -7% lower than the highs, with the front-end of the price curve -12% lower and the back-end, -6% lower. Year-over-year the forward terms are still +72% higher, on average, for the entire term. The natural moderation in temperatures coming-out of the summer peak demand has index prices continuing to drop. The month-to-date day-ahead index settlement prices for September in COMED are averaging $74.10/MWh thus far, or -18% lower than last month’s average but still +76% higher than the September average from a year ago, while AdHub is averaging $76.24/MWh thus far, or -19% lower than last month’s average but still +71% higher than the September average from a year ago. In Michigan, the month-to-date day-ahead index settlement prices for September are averaging $84.26/MWh thus far, or -13% lower than last month’s average but still +81% higher than the September average from a year ago, while Ameren is averaging $81.52/MWh thus far, or -13% lower than last month’s average but still +82% higher than the September average from a year ago.
- MISO Hosts Workshops on Renewable Accreditation and System Attributes - On 9/21, MISO hosted workshops on how it proposes to change wind and solar resource accreditation for capacity purposes to make it more consistent with the recently approved seasonal accredited capacity (SAC) method for thermal resources. MISO’s goal is to accredit wind and solar resources based on their availability during the tightest hours and adjust that number based on a class ELCC calculation. MISO intends to continue discussions regarding this design change through the end of November and anticipates filing any changes at FERC in late December or early next year. It is therefore unlikely these accreditation changes will take effect for the first seasonal auction in late March 2023. Also on 9/21, MISO hosted a second workshop to introduce stakeholders to concepts regarding changes to the availability of various system attributes as intermittent renewable penetration increases over time. MISO is concerned that the system is changing very fast and used this workshop to begin framing the discussion of what stakeholders should be considering. The discussion was more about the identification of the needs than which resources or market methods might be used to satisfy the needs. Future discussion of these issues will take place at the Resource Adequacy.
Northeast Energy Summary
- Echoing the same sentiment that was expressed a week earlier New England Winter Gas-Electric Forum , FERC members at their monthly open meeting Sept. 22, expressed deep concern about grid reliability issues in New England. Republican Commissioner James Danly invited parties to propose possible fixes through a Federal Power Act complaint alleging that the market is producing unjust and unreasonable rates. Danly stated, “I renew my request to my colleagues that we continue trying to figure out what to do about ISO New England because I think the situation is dire,” Danly said. “The strategy to get through this winter is to cross our fingers and hope for mild weather. if anybody can come up with a short-term fix that would help with fuel assurance this winter, I, for one, would solicit a 206 filing if that’s the way you think that would be appropriate to approach it,”
- FERC Chairman Richard Glick requested further analysis of the potential reliability issues form the New England ISO and also suggested that ISO New England consider “a seasonal market to incentivize generators to make arrangements that provide more assurance that there is going to be fuel supply when it is needed on the coldest days of the year.
- Last week, Governor Hochul announced the release of the state’s latest solicitation for land-based renewable projects in support of New York's 70% renewable generation by 2030 goal, as outlined in the Climate Leadership and Community Protection Act. The New York State Energy Research Development Authority’s (NYSERDA) sixth annual solicitation for large-scale renewable projects seeks to procure approximately 4.5 million MWh of renewable electricity per year from eligible facilities that enter commercial operation between 1/1/15 and 3/31/25. NYSERDA expects to notify the awarded developers in spring of 2023, who will receive NYSERDA Clean Energy Standard Tier 1 Renewable Energy Certificates (RECs) contracts. To date, NYSERDA has contracted with approximately 8,000 MW of Tier 1 eligible resources. Governor Hochul also announced a target for all state agencies to consume 100% renewable electricity by 2030 and mandated that no new state entity buildings entering permitting after 1/1/24 rely on fossil fuels except for backup generators. The governor’s order covers all state agencies, the Metropolitan Transportation Authority, all State and City Universities, NYPA and NYSERDA, but not the Port Authority. The renewable electricity target could be met through agencies purchasing renewable energy credits to offset their consumption and will prioritize projects to reduce emissions, including electrification, at facilities in disadvantaged communities. Hochul also used the order to codify her goal of ensuring all state passenger vehicles are zero emissions by 2035 and medium and heavy-duty by 2040. Hochul also announced that all state agencies with investment portfolios have developed plans to reach net-zero goals, totaling $50 billion in assets.
ERCOT Energy Summary
CAISO, Desert Southwest and Pacific Northwest Energy Summary
- Tuesday, Sept 6th, the CAISO set a new all-time demand record when usage peaked at 52,061 MW dunking on the 16-year-old record of 50,270 set on July 24, 2006. According to the CAISO’s peak load history going back to 1998, load has only ever broken 50 GW twice, once in 2006 and again in 2017. Even during the heat dome of 2020 that eventually led to the first rotating outages on the CAISO grid in nearly 20 years, the maximum observed load was only around 47 GW. The record-breaking demand on the 6th was immediately followed by loads on the 7th that would have at least come close to the record (and maybe set it) if not for the bar set by the 6th. What appears to have saved the CAISO from treating residents to time with family or colleagues free of distraction from any electrical device was a text message. That Tuesday afternoon, when air conditioners across the state were fighting hard against temperatures north of the century mark and the CAISO moved into an EEA 3 status as load was climbing through the afternoon, it was setting up as such that demand was going to blow through available supply triggering the first rolling blackouts in two years. But at 5:45 PM the Office of Emergency Services sent an emergency message that popped onto an estimated 27 million cell phones across the state. Over the next 45 mins, demand fell by about 2,600 megawatts as AC units were throttled back, EVs were unplugged, and your author took his phone off its charger. At the grid level, operating reserves were restored, and the grid started to back away from the edge. It was only the third time the state had used this type of alert, the first time ever for an energy related event. The day was saved.
- While demand has escalated, so did prices. On Tuesday the 6th in particular, prices in the real time market shot well over what the day ahead market had predicted on Monday the 5th and spent several hours over the $1,000 MWh level. The CAISO was fighting hard to keep energy from being exported to neighboring balancing authorities, to keep every possible unit online, and to encourage users to curtail. Prices above the $1,000 MWh level exceed the soft cap set in the CAISO tariff. These need to be justified by the sellers as cost-based in order to avoid being mitigated to a lower level. This will play out in the coming days as the paperwork is submitted and scrutinized, but it’s highly likely that the cost of gas and the high operational costs of the units being run under those conditions will pan out.
- Since our last update the California legislature voted to extend the life of PG&E’s 2,200 MW Diablo Canyon nuclear generation station. Debate over the plant had raged for years as supporters noted the importance of keeping nuclear on the CAISO grid to support clean energy goals and for reliability, while staunch environmentalists railed about ocean water cooling, nuclear waste concerns and earthquake risks. Under an agreement reach in 2016, the first unit was slated to retire in 2024, the second one year later. This vote for a 5-year postponement of retirement should not necessarily be construed as a new lease on life for the station. While it clears a path and provides for a $1.4B loan to continue to operate the plant, the bulk of funds will be used for the relicensing process of the Nuclear Regulatory Commission which awaits. The relicensing process often takes close to 5 yrs. If the license is extended, the retirement dates would be pushed to 2029 and 2030.
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