Weekly Energy Industry Summary

Commodity Fundamentals

Week of August 8, 2022

By The Numbers:

  • NG '22 prompt-month NYMEX closed at $7.59 /MMBtu on Monday, August 8, down 5.9 percent on the day.
  • WTI '22 prompt-month crude oil closed at $89.01/bbl on Monday, August 8, up $1.40/bbl on the day.

Natural Gas Fundamentals - Bullish/Neutral

  • Prompt-month NYMEX natural gas fell sharply on Monday, August 8 for the third consecutive session on cooler weather forecasts and higher U.S. production.
  • Lower 48 production was 97.4 Bcf, up 4.4 percent year-over-year, according to Bloomberg
  • Electric power generation loads are supportive in the early part of this week, particularly in the eastern corridor, however, temperatures are going to back down across much of the country in the 6-10 day period.

Crude Oil - Neutral

  • Crude oil and gasoline prices rallied on Monday, August 8 on weekend news that China's crude oil imports in July rose as transportation activities improved after the most recent round of Covid lock downs.
  • Crude oil also gained support form a mildly weaker dollar and a bullish call from Goldman Sachs.
  • Oil markets gained some support with OPEC plus announcing it would boost production by 100,000 bbls per day in September, well below what was expected.

Economy - Neutral/Bearish

  • U.S. employers added 528,000 jobs in July, a very strong report and double the expectation.
  • Average hourly earnings grew 5.2% from a year ago, but well below the current inflation rate exceeding 9%. Unemployment is at 3.5%.
  • The strong July jobs report has Fed watchers anticipating another 0.75 percent rate hike in the coming meeting.
  • U.S. television networks and news publishers are feeling the effects of a slowing economy as advertising revenues are falling, The Wall Street Journal reported.

Weather - Neutral/Bullish

  • Temperatures back off in the midwest in the 6-10 day period.
  • Temperatues also back off considerably in the east during the 6-10 day.
  • The southeast will largely be normal in the coming two weeks.
  • Texas remains hot but may get some rain in the coming days.
  • California will be mild on the coast and 90s inland.
  • Portland will heat up and hit 100 degrees later this week.

Weekly Natural Gas Report:

 
  • The Energy Information Administration (EIA) reported an injection of 41 Bcf into underground storage for the week ending July 29. Inventories are 2,457 Bcf, which is 12% less than the same period last year and 10% lower than the 5-year average.  
  • For the week ending July 26th, Baker Hughes reported 157 gas-directed rigs, up two from last week. Oil-directed rigs were at 605, up 6 for the same period.
Values reflect week ending August 5, 2022
Prices reflect week ending August 5, 2022

Weekly Power Report:

  • Forward prices were down across all regions, besides CAISO which saw a slight uptick in SP15. Forward power prices in ISONE fell 10.4% week over week.

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 another week.  U.S. natural gas futures fell about -5% to near a three-week low on Monday on record output and forecasts for cooler weather and lower air conditioning demand over the next two weeks than previously expected.  A drop in pipeline exports to Mexico along with the ongoing outage at the Freeport LNG facility has aided the overall supply picture being driven by record domestic production.  The natural gas storage injection last week was higher than expected, which pushed natural gas prices down further, but the announcement last week of the return of the Freeport LNG facility in early-October, continues to be a concern in the market regarding storage projections come winter.  Forward power prices in the Mid-Atlantic region were -2% lower for the 2023-2027 term over the past week, with each yearly term seeing the same percentage drop.  Compared to the all-time highs for that entire term, forward prices were -14% lower on average than those highs, with the front-end of the price curve -19% lower and the back-end -12% lower.  The index settlement prices continue their trend due to the increased summer heat.  Month-to-date day-ahead index power prices for August in West Hub are averaging $99.74/MWh or +14% higher than last month’s average and +138% higher than the August average from a year ago, while the Eastern Hub has settled at $140.12/MWh thus far this month, which is +40% higher than July’s average and +206% higher than August’s average last year.
  • 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.

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 another week.  U.S. natural gas futures fell about -5% to near a three-week low on Monday on record output and forecasts for cooler weather and lower air conditioning demand over the next two weeks than previously expected.  A drop in pipeline exports to Mexico along with the ongoing outage at the Freeport LNG facility has aided the overall supply picture being driven by record domestic production..  The natural gas storage injection last week was higher than expected, which pushed natural gas prices down further, but the announcement last week of the return of the Freeport LNG facility in early-October, continues to be a concern in the market regarding storage projections come winter.  Forward power prices in the GLR region were -2% lower for the 2023-2027 term over the past week, with each yearly term seeing a similar percentage drop.  Compared to the all-time highs for that entire term, forward prices were -15% lower on average than those highs, with the front-end of the price curve -19% lower and the back-end -13% lower.  The index settlement prices continue their trend due to the increased summer heat.  The month-to-date day-ahead index power prices for August in COMED are averaging $98.75/MWh or +19% higher than last month’s average and +139% higher than the August average from a year ago, while AdHub has settled at $102.84/MWh so far this month, which is +17% higher than July’s average and +143% higher than August’s average last year. In Michigan, the month-to-date day-ahead index power prices for August are averaging $102.27/MWh or +16% higher than last month’s average and +126% higher than the August average from a year ago, while Ameren has settled at $99.63/MWh so far this month, which is +15% higher than July’s average and +133% higher than August’s average last year..
  • 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

  • On July 27, the New England Governors sent a letter to the U.S. Department of Energy regarding the high and volatile global energy prices and specific implications in New England for this coming winter.  The letter notes that the invasion of Ukraine has exacerbated the pricing of energy commodities and requests that DOE take three immediate steps to mitigate the energy situation: (1) work with the New England states to alleviate the unique fuel challenges of the region including suspending the Jones Act for the delivery of LNG for a portion of all of winter 2022-2023; (2) support the New England states in assessing how the Northeast Home Heating Oil Reserve may be utilized this winter and consider the development of a new reserve; and (3) immediately commence coordination between the federal government and the New England states to monitor developments as winter approaches. The concern expressed by the Governors stresses the risks to energy prices this winter. All customers exposed on index should understand those risks heading into winter and speak to their Constellation representative.
  • Last Thursday, August 4’s peak demand value fell just short of the current year-to-date unofficial preliminary peak demand value set on July 20 at 24,323 MW. The day’s values came during hour ending 7pm, in which all of the summer’s peak demand highs are occurring, at 24,167 MW. As of this writing, the July 20 values remains the YTD high but all values are subject to change by the ISO New England on account of settlement revisions in addition to two more expected hot days for the region on August 8 & 9. Customers looking to curtail load in the Peak Response program will receive an email the evening before and morning of any potential days if the Constellation Products team deems it prudent to call a regional notification to voluntarily reduce load.
  • On July 28 the New York Assembly held a public hearing to examine the role of State authorities in facilitating the development of renewable energy to meet the clean energy goals of the Climate Leadership Community Protection Act.  The hearing was originally announced by Assembly Speaker Heastie to focus on the “Build Public Renewables Act” (S.6453-C/A.1466-D), which proposes to allow the New York Power Authority (NYPA) to develop and own renewable power projects and expand its customer base to serve residential customers and Community Choice Aggregations (CCAs).  The hearing consisted of 10 panels of speakers who provided oral testimony, followed by a question-and-answer period led by attending legislators.  The highlight of the hearings was the third panel, comprised of Doreen Harris of NYSERDA, Rory Christian of the PSC, Justin Driscoll of NYPA, Houtan Moaveni of ORES, and Rich Dewey of the NYISO.  Harris stated New York is on track to exceed the CLCPA mandate of 70% renewable energy by 2030 and that private innovation is a model for the rest of the world.  Ms. Harris also acknowledged the risks of changing economics which are assumed by private investors, not ratepayers. Driscoll advised legislators that state authorities would be subject to the same permitting processes as private investors and that passing the Build Public Renewables Act would require NYPA to significantly expand supply to its (proposed) expanded public customer base.  He also acknowledged the overwhelming amount of private investment in the state and noted NYPA is not currently equipped to build and develop renewable projects.  Assembly Energy Chair Cusick asked if the CLCPA goals can be met without increasing public involvement and Driscoll said it is possible and that we are exceeding the state’s goals already.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  •  The weather in California remained mostly mild in July as the neighboring regions experienced temperatures that counted as summer highs. This past weekend featured heat along the entire West Coast including highs in the low 100s on both days in Burbank, a 100° day in Portland and a 90° day in Seattle. The heat will roll on this week as both California and the PNW are expected to see above normal temperatures for the next several days potentially seeing Cooling Degree Days (CDDs) through the 15-day period rank 3rd-highest since 1950 in the region. CAISO operators will see a steady ramp this week in net loads moving from the 25.5 to 28 GWa by Thursday and are going to need to lean on the gas to meet demand. SoCalGas sendouts will move from the mid-2 Bcf level to 3 Bcf by Thursday and lead the way higher for prices among the city-gates in state this week. Storage operators will also be pulling gas out of inventory up north now that cuts along the Redwood path are in effect in PG&E territory thereby lifting prices there too. In terms of prep for this coming winter, SoCalGas is still sitting on a boatload of gas in storage which kept daily settles in check in July especially with the lack of cooling degrees hitting the coastal cities. Stocks have tipped the scale for the last couple of months right around 90 Bcf as SoCalGas has only needed to inject or withdraw small amounts for daily balancing. This has kept their caverns right on the edge of full giving their operators less wiggle room which translates to customers needing to be more precise in their scheduling lest they run into the penalty box of operational flow orders. 
  • Congestion is the word of the week for the CAISO power grid as the spread between the two P15 hubs blew out from around $5ish per MWh level last week to over $20/MWh by Sunday. Peak period index settlements at SP15 are coming in well over NP15 as some of that DSW monsoonal cloud cover shades solar panels across the southern part of the state while the hot dry air fails to move the wind turbines. Couple this with a lack of instate hydro generation and declining imports from the PNW as the hydro MWs need to stay home to help balance the grid forces a greater reliance on gas-fired gens in the south to ramp up and cover the shortfall. The closer the high temps this week creep towards the LA Basin coast the greater the spread between hubs and the higher the index prints. What should keep the Western grid from coming apart at the seams is the lack of participation from the DSW. Vegas is seeing a rare week of rain and below normal temperatures while Phoenix is deep in monsoon season which boosts cloud cover and keeps temperatures close to the century mark, both of which minimize the need for either control area to pull MWh from the CAISO grid to meet peak demand needs. It also means the CAISO is likely to see another peak summer week slip by without having to weigh cutting exports to PV or Mead which goes over oh so well with the neighbors.
  • In response to the fully paid-up subscriber that asked last week about the interplay of waterflows between Lakes Mead and Powell and the resulting power generation profiles, here’s some thoughts. Both Lake Mead and Lake Powell seem to record new long-term low fill levels nearly every year. The lakes, located behind the Hoover and Glen Canyon dams respectively, have been impacted by decreasing water flows levels in the Colorado River as decreasing snow levels in the mountains and spring precipitation become relics of the past. As noted last week, Lake Powell, hit a critical point earlier this year when the reservoir level came dangerously close to the minimum level needed to generate power. To save generation, the Bureau of Reclamation intervened to increase flows coming from upstream and decrease flows leaving the dam. Over the last few months, the elevation level has rebounded which has kept the turbines spinning albeit at a much-reduced level – July 2019 saw generation peak above 600 MW while last month it struggled to break 350 MW. Lake Mead, downstream of Lake Powell, has to deal with the consequences of the decisions upstream. Lake Mead’s elevation dropped into a Tier 2 shortage level earlier this year which means states downstream of Hoover Dam, including California and Arizona, face restricted water usage in the coming year. The power generation at Hoover is not threatened yet as more efficient generators were put in a few years ago to ensure power generation could happen even at lower pool levels. Even the power transformer that blew to much viral video fanfare at Hoover last month didn’t cause a blip in the output. As both lakes are expected to continue shrinking some of the ideas being kicked around to offset the situation are dramatic and include such madness as diverting water 1600 miles via aqueduct from the Mississippi or Missouri rivers.

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