The Weekly eMarket Update will not publish the week of January 17th due to the holiday. However, we will return the week of January 24th. We hope that everyone has a very happy and safe holiday!

Weekly Energy Industry Summary

Commodity Fundamentals

Week of January 10th, 2022

By The Numbers:

  • NG '22 prompt-month opened at $4.14/MMBtu on Monday, January 10th, up $.22/MMbtu from last week's settlement.
  • WTI '22 prompt-month futures opened at $78.88/bbl Monday, January 10th, up $.02/bbl from last week's settlement.
  • Coal spot contracts (Central Appalachia) are trading at $86.55/ton, down $5.95/ton from the previous week, EIA reported.

Natural Gas Fundamentals - Neutral/Bullish

  • Prompt-month NYMEX natural gas opened trading on Monday, January 10th at $4.14/MMBtu, up $.22/MMbtu from the previous settlement.
  • Prompt-month NYMEX natural gas traded down modestly in afternoon trading at $4.07/MMBtu.
  • Temperatures are shifting colder for the remainder of the month.

Crude Oil - Neutral

 

  • Prompt-month crude oil prices opened on Monday January 10th at $78.88/bbl, up $.02/bbl from last week's settlement. 
  • Prompt-month crude traded down $.90/bbl to $78.00 in afternoon trading.
  • In general, oil prices are up about $10/bbl over the past month as fears of the Omicron variant recede.

Economy - Bullish/Neutral

  • December jobs came in at 199,000, far below expectations of 400,000.  Unemployment ticked down to 3.9 percent.
  • Equities sold today as investors reposition purchases of stocks with expectations of the Fed raising rates through 2022.
  • The electric-vehicle race (EV) is tightening as car companies get ready to release a barrage of new battery-powered models this year and next.

Weather - Bullish

  • The weather models picked up some heating degree days in the past 48 hours.
  • The pattern will be variable with cold shots followed by brief warm ups. The Southeast continues to be least affected.
  • The intensity of the cold air is going up a bit. January is likely to come in close to "normal" or slightly below on a heating degree-day basis.

Weekly Natural Gas Report:

 
  • The Energy Information Administration (EIA) reported a withdrawal of 31 Bcf from underground storage for the week ending December 31st, 2021. Inventories are 3,195 Bcf, which is 154 Bcf less than the same period last year and 96 Bcf more than the 5-year average. For the week ending December 28th, Baker Hughes reported 106 gas-directed rigs, flat from the prior week. Oil-directed rigs were at 480 for the same period, also unchanged from the previous week.
Prices reflect week ending Jan 7, 2022
Prices reflect week ending Jan 7, 2022

Weekly Power Report:

Power - Volatility Easing

  • Power prices in the mid Atlantic and the Great Lakes Region were up one to three percent from the prior week.  Real-Time prices in ERCOT averaged $23.23 per Mwh.    

Mid-Atlantic Electric Summary

  • The Mid-Atlantic Region’s forward power prices remain somewhat rangebound within price levels experienced since early December, but they have recently found price support from colder temperature expectations that are starting to become realized.  Daily natural gas demand, preliminarily, set a record on 1/7/22 and could remain elevated over the next week or so.  Strong export demand and a dip in natural gas production due to weather-related impacts on drilling rigs could continue to provide price support to the forward pricing terms in the near-term.  Natural gas prices were up nearly +7% on Monday due to these recent market drivers.  The forward power price strips through 2026 were +2% higher on average over this past week with the 2022-23 strip about +4% higher, while the longer-term prices for 2025-26 only ticked-up about a percent.  Those forward prices are roughly -10% lower than the all-time high prices for 2022, while the outer terms of 2023-26 stayed a bit firmer within only -4% of their all-time high prices.  Due to a mild start to winter, December index prices were markedly lower month-over-month, and have come down considerably compared to last year at this time.  The day-ahead index power prices in West Hub averaged $35.74/MWh or -44% lower than the previous month of November but were still +49% greater than the December average of 2020, while the monthly average settlement price for the Eastern Hub came in at $39.97/MWh or -43% lower than November’s average but still +46% greater than the December average of a year ago.
  • FERC Overturns PJM ORDC Reforms and Delays 2023/24 Capacity Auction – On 12/23, FERC issued an order overturning its prior approval of PJM's Operating Reserve Demand Curve (ORDC) reforms that were approved in May 2020.  FERC rejected requests for rehearing of that order in November 2020, leading to appeals that were pending at the change in Administration after which FERC requested voluntary remand to reconsider the case.  Without seeking further comment, FERC summarily overturned its prior orders and directed PJM to reinstate its former ORDC and backward-looking energy and ancillary services (EAS) offset.  This will require PJM to delay the upcoming auction for the 2023/24 delivery year to revert back to prior EAS offset calculations that are key inputs to the auction process, which in turn will result in delays for the auction for future delivery years.  FERC directed PJM to propose a new schedule for the capacity auctions within 30 days.  PJM’s new ORDC would have allowed PJM to procure additional reserves as it approached, but has not yet reached, scarcity conditions.  It also would have implemented escalating prices for reserves that better reflected the value of electricity during shortage conditions. 

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices remain somewhat rangebound within price levels experienced since early December, but they have recently found price support from colder temperature expectations that are starting to become realized.  Daily natural gas demand, preliminarily, set a record on 1/7/22 and could remain elevated over the next week or so.  Strong export demand and a dip in natural gas production due to weather-related impacts on drilling rigs could continue to provide price support to the forward pricing terms in the near-term.  Natural gas prices were up nearly +7% on Monday due to these recent market drivers.  The forward power price strips through 2026 were +1% higher on average over this past week with the 2022 strip about +3% higher, while the longer-term prices for 2025-26 only ticked-up about a percent.  Those forward prices are roughly -10% lower than the all-time high prices for 2022, while the outer terms of 2023-26 stayed a bit firmer within only -4% of their all-time high prices.  Due to a mild start to winter, December index prices were markedly lower month-over-month, and have come down considerably compared to last year at this time.  The day-ahead index power prices in COMED averaged $31.05/MWh or -34% lower than the previous month of November but were still +38% greater than the December average of 2020, while the monthly average settlement price for the AdHub came in at $36.90/MWh or -39% lower than November’s average but still +50% greater than the December average of a year ago.  The December day-ahead index power prices in Ameren averaged $38.25/MWh or -33% lower than the previous month of November but were still +57% greater than the December average of 2020, while the monthly average settlement price in Michigan came in at $38.28/MWh or -27% lower than November’s average but still +53% greater than the December average of a year ago.  
  • FERC Overturns PJM ORDC Reforms and Delays 2023/24 Capacity Auction – On 12/23, FERC issued an order overturning its prior approval of PJM's Operating Reserve Demand Curve (ORDC) reforms that were approved in May 2020.  FERC rejected requests for rehearing of that order in November 2020, leading to appeals that were pending at the change in Administration after which FERC requested voluntary remand to reconsider the case.  Without seeking further comment, FERC summarily overturned its prior orders and directed PJM to reinstate its former ORDC and backward-looking energy and ancillary services (EAS) offset.  This will require PJM to delay the upcoming auction for the 2023/24 delivery year in order to revert back to prior EAS offset calculations that are key inputs to the auction process, which in turn will result in delays for the auction for future delivery years.  FERC directed PJM to propose a new schedule for the capacity auctions within 30 days.  PJM’s new ORDC would have allowed PJM to procure additional reserves as it approached, but has not yet reached, scarcity conditions.  It also would have implemented escalating prices for reserves that better reflected the value of electricity during shortage conditions. 

Northeast Energy Summary

  • Tuesday, January 11 brought the winter-to-date’s coldest day for New England. High temps in the low teens with even colder wind chills tested grid operations and reliability. As expected, natural gas and power prices for the day were elevated but there were no disruptions seen. Spot Algonquin natural gas saw prices reach in the low $20’s/MMBtu in the preceding weekend but only the high teens on the frigid Tuesday as data shows supplemental imported LNG backfill into the system (~300 MMcf) likely alleviated some demand/price pressure. Index power prices ranged from $150/MWh to $200 on the day as oil was often the marginal unit and at points accounted for up to 18% of the region’s fuel mix – a stark increase from the annualized percentage of <1%.
  • Meanwhile, the price for highly competitive LNG cargoes to the region has continued to moderate with the prompt month Dutch Title Transfer Facility European benchmark pivoting around $30/MMBtu – this after prices reached $60 in late December off of nuclear outage announcements in France. Mild weather, strong LNG imports, a well-stocked Asian demand has kept upward resistance on prices for the time being. 
  • On 1/5, NYISO filed at FERC a proposal to exempt from its version of the Minimum Offer Price Rule (MOPR) resources required to satisfy the goals of the state’s Climate Leadership and Community Protection Act, which requires 70 percent renewable generation by 2030 and 100% carbon free generation by 2040. NYISO also proposed a capacity accreditation framework pursuant to which NYISO will evaluate on an annual basis the capacity accreditation of all resource types.  NYISO proposed that its MOPR reforms take effect in April 2022 and implementation of the capacity accreditation in May 2024. In its filing, the NYISO emphasized the proposals were a product of an extensive stakeholder process that resulted in 82.03% approval by the Management Committee.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • The number one question posed to us since we returned to the desk this year has been what to make of all the storms that slammed into California since our last update and what they mean for hydro generation. The storms fueled by a band of moisture over the Pacific began the week of Christmas and continued to usher in rain and mountain snow (nearly 20 feet in some parts of the Sierra!) through the end of the year. During those two weeks of steady rain and snow, precipitation averaged 150-300% of normal or more throughout nearly all of California. U.S. Drought Monitor data shows that the most notable outcome was to move the state from the "Exceptional Drought" and "Extreme Drought" categories into merely the "Severe Drought." Digging deeper shows that current year snowpack is a little above the 5-year average for water content at this point in the season. It's possible that we’ll see the snow water equivalent eclipse last year's peak by the end of the season, but there’s a long way to go before peak snowpack conditions are reached, typically in March. There will not be a full recovery in hydro generation until reservoir elevations recover to normal levels. The recent gains from rain and snow are a welcome change to combat the ongoing drought, but do not count on all of this eventual runoff to mean a recovery in hydro power output. A good portion of runoff this spring will be lost to exceptionally dry ground absorbing it in transit to streams/rivers/reservoirs/lakes. It also does not solve drought conditions along the Colorado River. The Lake Mead water elevation is at 1067 feet, which is about 160 feet below full pool; Lake Powell is in a similar situation. This means that both reservoirs are holding about 30% capacity. While the early snow accumulations are encouraging, there has to be at least a couple of years of above-normal builds to get California back in working order, and likely a few more years to get the DSW back to normal. Until this occurs, summer prices are likely to maintain a risk premium. One notable immediate change to power gen output in the state was the return of production from the Hyatt hydro plant. This is the facility located at the base of Lake Oroville which shut last summer because the lake fell below the powerhouse intakes. The lake has risen 90 feet since the start of the Water Year, moving the water level above the intakes and allowing for a couple turbines at the plant to begin spinning again, bringing roughly 30 megawatts of capacity back online.


  • The CAISO is looking at loads that are low and getting lower this week as the weather is a far cry from the recent stretch of cold (relative term) temperatures that fell over the state in recent weeks. The current temp outlook is slightly above normal across the entire West and forecast to increase throughout the week, eventually seeing the L.A. Basin top out close to a number that starts with eight on Wednesday. The mild temps, abundant imports from the PNW and increased solar output will keep power burn and ResCom demand on the system low, so sendouts on both PG&E’s and SoCal’s systems will be on the low side for this time of year. PG&E’s storage inventories took the largest hit during the holiday period dropping from 130 Bcf to 105 Bcf today. Even after the strong use of storage last month, the Lodi and Wild Goose facilities in their territory have struggled to get volume out of the ground. Lodi only took 6 Bcf out during the month, knocking inventory down to 28 Bcf. Wild Goose was able to get 23 Bcf out of the ground, but they are still well within the normal range of operation. The PG&E core storage has only 5 Bcf left, but this is by design as they do not intend to utilize this capacity. Sendouts on the SoCalGas system peaked at 4.1 Bcf on December 15th, its sixth-highest demand day ever and the strongest since December 2019, but are expected to be under 3.2 Bcf this week, which means they will not need to use Aliso Canyon for dispatch. Despite the high demand in December, SoCalGas only pulled about 7 Bcf from storage throughout the month, dropping their inventory level to about 78 Bcf. El Paso is still providing guidance that the L2000 force majeure will be in effect through at least the end of January.
  • A game of musical chairs took place at the CPUC at the end of the year, seeing President Marybel Batjer give up her seat to Alice Reynolds, a long time Senior Advisor for Energy to Governor Gavin Newsom. The next time that the music stopped, Comm. Martha Aceves left for a senior role at the EPA, allowing relative unknown newcomer John Reynolds to be appointed and take her seat. Four of the five sitting commissioners have now been appointed by the current governor. The more nuanced implication of the new commissioners is the role they may now play in the contentious decision known as NEM 3.0 that involves solar on residential rooftops in the state and cost equity. Despite the governor refraining from public comment in response to the controversial PD released by the CPUC on the topic on December 13th, his influence on the outcome with these two recent appointments is clearly significant. One might speculate that Comm. Reynolds (Alice) -has a favor to repay for the lovely new title, while Comm. Reynolds (John), in his role as advisor to former Comm. Carla Peterman, will be well-versed in the resi solar debate. He was front-and-center on her team during the 2016 NEM 2.0 deliberation in which Comm. Peterman was one of three "yes" votes for a NEM 2.0 Final Decision where she voiced ongoing concerns with the broad and unspecified values for distributed solar gen at that time.

Stay up-to-date on the latest energy news and information:

  • Fortunato & Friends Webcast - On Tuesday, February 1st at 2 p.m. ET, our chief economist Ed Fortunato will visit with Ace Alexander, Senior Manager of Market Fundamentals - Fuels for Constellation, to disucss the following topic: Oil & Gas: Production, Prices and Predictions.
  • Energy Market Intel Webinar - Register for our next market update webinar on Wednesday, February 16th at 2 p.m. ET when the CMG team will provide insights on market factors currently affecting energy prices, such as weather, gas storage and production, and domestic and global economic conditions.
  • Energy Terms to Know - Learn important power, gas and weather terms.
  • Sustainability Assessment - We invite you to complete a brief assessment that helps us learn where your company is in building and/or implementing a sustainability plan. Through these insights, Constellation can customize solutions to meet your needs.
  • Subscription Center - Sign up to receive updates on the latest market trends.

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