Weekly Energy Industry Summary

Commodity Fundamentals

Week of January 30, 2023

By The Numbers:

  • NG '22 prompt-month NYMEX settled at $2.67/MMbtu, down $.17/MMbtu on Monday, January 30.
  • WTI '22 prompt-month crude oil closed at $77.90/bbl., down $1.78/bbl., on Monday, January 30.

Natural Gas Fundamentals - Neutral

  • Prompt month NYMEX natural gas settled at $2.67/MMbtu on Monday, January 30, down $.17/MMbtu.
  • The weather for the first week of February is decidedly cold for the first week, but then turns warmer into the mid part of February.
  • NYMEX strip prices 2024 through 2028 settled at $3.81, $4.08, $4.13, $4.20, and $4.27 respectively.
  • European natural gas prices settled at $17.23/MMbtu, while Asian prices were $19.48/MMbtu.
  • The Freeport LNG terminal is still up in the air as to a startup date.  The current view is for a startup in March.
  • Natural gas production is at 96.2 Bcf/day, down nearly 4Bcf/day per freeze offs.  Month-to-date, natural gas production is 100 Bcf/day, up 2.8 Bcf/day month-over-month, and up 5.7 Bcf/day year-over-year.

Crude Oil - Neutral/Bullish

  • Prompt-month crude oil settled at $77.90/bbl on Monday, January 30, down $1.78/bbl.
  • Oil prices dipped 2% on Monday, extending recent losses.  Pending interest rate increases and reports of Russian supplies continuing to find buyers despite an EU ban and G7 price cap.
  • Markets are building in some rising demand from China but still waiting for clear signals from the world's second largest economy.
  • U.S. crude oil inventories are expected to have dipped by about 1 million barrels the week of Jan 27, according to Reuters.
  • OPEC plus delegates meet next week to discuss output but no changes are expected at this time.

Economy - Neutral

 
  • The IMF upgrades its outlook for the global economy as easing inflation and China's reopening may allow the global economy to grow a bit faster than previously thought.
  • China's consumers are rebounding, but many headwinds are still in place relative to its economy opening fully.
  • The Fed is set to raise interest rates by one quarter point in Wednesday's open meeting.
  • Despite easing, inflation continues to bite into U.S. consumers as retail purchases have fallen three of the past four months.
  • Consumer spending fell 0.2% in December, the Commerce Department reported.
  • U.S. home prices fell for the fifth straight month, according to Case Schiller, a sign of a cooling economy.

Weather - Neutral

  • Well below normal temperatues are coming to the midwest this week and then moving quickly to the east.
  • The arctic air will be short lived as a warm up takes place next week in the eastern half of the country.
  • The northern tier of the country will likely see variable cold shots through the month of February, but overall, the pattern for the entire country is "warmer than normal."
  • The first week of February is going below normal in the Midwest and Northeast.
  • Much of the south and particulalry the southeast will be warmer than normal in the 11-14 day period.

Weekly Natural Gas Report:

 
  • The Energy Information Administration (EIA) reported a withdrawal of 91 Bcf out of underground storage for the week ending January 20. Inventories are 2,729 Bcf; gas inventories are 5% greater than the five year average and 4% greater than the same time last year.  For the week ending January 17, Baker Hughes reports 156 natural gas rigs in operation, up (6) from the prior week.  Crude oil rigs were reported at 613, down ten (10) for the same period.
Values reflect week ending Jan. 27, 2023
Prices reflect week ending Jan. 27, 2023

Weekly Power Report:

  • Forward prices once again fell week over week in all regions. NYISO, ISONE, PJM and CAISO all saw double digit price decreases. ERCOT saw prices fall between 4.0-4.3%.

Mid-Atlantic Electric Summary

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  • The Mid-Atlantic Region’s forward power prices continue their slide this month as the absence of a “winter” thus far continues to weigh on prices throughout the forward price curve.  Natural gas prices dropped -5% and reached a 21-month low early Monday morning as warmer than expected temperatures and lower heating demand for the first half of February, has caused both natural gas and power prices to continue to fall.  Leading up to this point were price declines resulting from the market feeling there was adequate natural gas storage for the balance of the winter and a consensus that the Freeport LNG export facility wouldn’t see a return until March at the earliest.  The Mid-Atlantic forward electricity prices for the 2024-2027 term were -3% lower, on average, over the past week and -13% lower over the past month, but still +14% higher over the past year.  Compared to the all-time highs, that term is -25% lower on average.  Index prices in January are considerably lower than in December due to the lower heating demand overall.  Thus far in West Hub, the average monthly settlement price in January is $29.08/MWh or -68% lower than the previous month’s average, while the settlement average price in the Eastern Hub is $28.56/MWh or -70% lower than December’s average last month.
  • PJM Provides Winter Storm Elliott Updates to Members - At each of the various PJM committee meetings this week, PJM and the IMM have provided updates regarding Winter Storm Elliott impacts and settlements.  PJM noted that initial penalty/bonus calculations are complete based on preliminary balancing ratios and excused performance assessments.  PJM plans to present preliminary settlement reports to unit owners by 2/10.  The reports will include details regarding unit performance, resource outages details, and resource charges and will provide a billing month summary. The settlement data also will offer a preliminary view of bonus/penalty payments, by unit, subject to finalization after PJM receives demand response inputs on 2/14 and subsequently calculates the final event balancing ratio.  PJM also reported issue dates for the March, April, and May invoices, which will include initial penalty/bonus settlements.  PJM also announced that, in the interest of minimizing market disruption, it will submit tariff reforms to FERC no sooner than 2/3 to extend invoicing for the event beyond the end of the delivery year in May.  PJM has suggested that it will propose a nine-month billing period for any Performance Assessment Interval event and that it may propose to charge interest for any penalty payments owed after the initial three months.

Great Lakes Electric Summary

  • The Great Lakes Region forward power prices continue their slide this month as the absence of a “winter” thus far continues to weigh on prices throughout the forward price curve.  Natural gas prices dropped -5% and reached a 21-month low early Monday morning as warmer than expected temperatures and lower heating demand for the first half of February, has caused both natural gas and power prices to continue to fall.  Leading up to this point were price declines resulting from the market feeling there was adequate natural gas storage for the balance of the winter and a consensus that the Freeport LNG export facility wouldn’t see a return until March at the earliest.  The GLR region’s forward electricity prices for the 2024-2027 term were -1% lower, on average, over the past week and -12% lower over the past month, but still +19% higher over the past year.  Compared to the all-time highs, that term is -23% off those price levels on average.  Index prices in January are considerably lower than in December due to the lower heating demand overall.  Thus far in COMED, the average monthly settlement price in January is $28.27/MWh or -55% lower than the previous month’s average, while the settlement average price in the AdHUb is $29.11/MWh or -65% lower than December’s average last month.  In Michigan, the average monthly settlement price thus far in January is $36.54/MWh or -44% lower than the previous month’s average, while the settlement average in the Ameren is $34.89/MWh or -45% lower than December’s average last month.
  • PJM Provides Winter Storm Elliott Updates to Members - At each of the various PJM committee meetings this week, PJM and the IMM have provided updates regarding Winter Storm Elliott impacts and settlements.  PJM noted that initial penalty/bonus calculations are complete based on preliminary balancing ratios and excused performance assessments.  PJM plans to present preliminary settlement reports to unit owners by 2/10.  The reports will include details regarding unit performance, resource outages details, and resource charges and will provide a billing month summary. The settlement data also will offer a preliminary view of bonus/penalty payments, by unit, subject to finalization after PJM receives demand response inputs on 2/14 and subsequently calculates the final event balancing ratio.  PJM also reported issue dates for the March, April, and May invoices, which will include initial penalty/bonus settlements.  PJM also announced that, in the interest of minimizing market disruption, it will submit tariff reforms to FERC no sooner than 2/3 to extend invoicing for the event beyond the end of the delivery year in May.  PJM has suggested that it will propose a nine-month billing period for any Performance Assessment Interval event and that it may propose to charge interest for any penalty payments owed after the initial three months.

Northeast Energy Summary

  • Last month, the Massachusetts Executive Office of Energy and Environmental Affairs (EEA) released its Clean Energy and Climate Plan for 2050 (CECP), which provides details on the actions the Commonwealth will take to achieve Net Zero GHG emissions by 2050.  EEA also released a new dashboard that will track the state’s emissions reductions progress in terms of transportation, buildings, electricity.  The plan is highly focused on transportation and buildings electrification, stating that 97% of all light-duty vehicles on the road will have to be electric and 80% of the state’s housing stock will have to be heated by electricity.  These policies will more than double the electricity consumption compared to 2020, according to EEA.  Regarding the power generation sector, EEA’s set target to reduce power generation emissions by 93% from 1990 levels, a limit of roughly 2.0 MMTCO2e.  Notably, this is not as stringent as a different portion of state law that requires a roughly 1.8 MMTCO2e cap.  The Commonwealth will need to develop large amounts of renewable energy to meet these goals, but there will still be a place for the fossil-fired generation fleet in 2050, according to the CECP.  “A power system dominated by variable renewable energy resources will need to retain certain existing dispatchable thermal generators to ensure reliability while minimizing the costs of balancing the grid.”  The CECP also urges the state to stop using long-term contracts and instead evolve the wholesale electricity markets to consider a Forward Clean Energy Market.  “The current model of individual state procurements for clean energy projects occurs outside of existing wholesale market structures, requires a lengthy solicitation and regulatory review process, and places financial risk on ratepayers through long-term contracts…. An FCEM model, in contrast to procurements, would allow for better integration with existing competitive wholesale market structures and could be technology-neutral, conducted regularly, and enable each New England state to secure necessary clean energy resources.”  The report was required under state law as a companion piece to prior road maps developed by EEA for 2030 and 2035, although it does not establish binding requirements on the incoming Maura Healey Administration. 
  • On January 19th, the New York Public Service Commission (PSC) adopted changes to the provisions governing community choice aggregation programs (CCAs) following the recommendations of a Department of Public Service (DPS) staff whitepaper issued in April 2021.  The Order addresses issues around program standardization and uniformity, standardization amongst utilities, streamlined filing processes, and additional transparency requirements.  The order aligns CCA product offerings with consumer protection measures embodied in the PSC’s 2019 “market reset” that imposed guaranteed savings on variable rate products and price caps on fixed product offerings for mass market customers.  Renewable product offerings are not subject to price caps; however, administrators offering a renewable energy product must explicitly disclosure the price of renewable products compared to non-renewable offerings.  The PSC also ruled that all CCA program participants on the same product are required to receive the same product pricing, regardless of when they were enrolled.  The order also requires CCA administers to be more transparent with program information including posting of contact information, identification of commodity supplier (ESCO), price to compare, opt-out periods, outreach and education materials, customer service and complaint filing information, along with contact information for incumbent utility and adopted FAQs.  The CCA administrator will also now be included on customers’ bills in addition to the ESCO name which currently appears on the bill (as the CCA's supplier).  The utilities were each directed to file, within 60 days, specific transactional limitations of their billing systems so that the CCA administrators and ESCOs can properly plan their enrollments without having to worry about crashing the utility systems.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • Very cold, arctic air is impacting portions of the PNW and Rockies today with sub-zero temps common across those regions and bleeding into the state. Turns out the warmth that blanketed California as the jet stream picked up some of the warm Pacific flow last week was a head fake. The various weather forecasts for February are showing pretty good alignment that cold is locked in for the state and especially the LA Basin and DSW cities for the first half of February, something like 3 – 8 degrees below normal. This means PG&E and SoCalGas will be pulling from storage for the next couple weeks as well as trying to bring gas in via the import pipes. Their sendouts should jump to the 7 Bcf level which will likely mean they need to draw a combined 2 Bcf or so from the caverns to supplement imports several times during the first half of the month. Be on the lookout for low OFOs. PG&E storage inventories have dropped to 67 Bcf which is roughly 30 Bcf below where they were a year ago. SoCalGas is in slightly better shape with inventories at the 55 Bcf mark or about 25 Bcf below 2022 levels. If the cold weather delivers on the current forecasts, the likely outcome is the gas storage tanks will be at five-year lows when we come out the other side in about two weeks. While there’s still another month and a half of potential winter weather, gas basis in the state is beginning to reflect the chance that we start injecting gas in about a month and the robust influx of water this winter will likely have a dampening effect on the need for gas to run thermal generators this spring and summer.
  • Looking beyond the next couple weeks to the end of month and beginning of March, open questions that will swing market prices will be the return of El Paso Pipeline’s Line 2000. Paperwork was confirmed to have been submitted last week to the PHMSA for review, placing a potential return to normal operating pressure and flow in March. Now we wait. Not only has the ground been saturated (check out the cliff collapse in San Diego!), the state’s hydro reservoirs have been refilling at a healthy clip and the mountains are storing the white stuff for run-off season once climate change brings warmer temperatures back into the picture. Several reservoirs in the state have recouped years of deficits to return to normal levels, but several are still trying to make up for lost time. Statewide the water tanks are about 95% of historical average to date, important to note, that’s not the same as 95% full. The operative question is how the water sitting on the mountains will arrive. An early melt will potentially swamp the system, crushing prices in the spring as strong wind and solar production coincide. This scenario also leaves Q3 power prices exposed as much of the water is lost over dams as reservoirs lack the space to fully capture the run-off. Were we to see a continuation of the cooler than average temps the state has been experiencing late into the spring, the melt may happen at a measured pace allowing hydro dispatchers to capture more of the streamflow and preserve it for critical early evening dispatch throughout the summer.
  • In an announcement we saw coming a mile out, the Statewide Advisory Committee on Cooling Water Intake Structures (SACCWIS), recently issued a draft report to the State Water Resources Control Board recommending the once-through-cooled (OTC) generators slated for retirement remain online for an additional three to five years. Specifically, the report recommends the Board allow three AES plants – the 1,137MW Alamitos Energy Center, 1,491MW Ormond Beach Gen Station and the 226MW Huntington Beach Gen Station – to stay online until the end of 2026. This would be the second three-year extension of these plants with a combined capacity of 2,854MW that were originally supposed to shutter in 2010. SACCWIS also recommended keeping LADWP’s 324MW Scattergood plant online for another five years, extending its service life out to the end of 2029. The report also suggests a revised compliance date for the Diablo Canyon nuke that would push out its compliance date to stop drinking ocean water out another 10 years with the potential to add another 10 years after that. The draft report is supposed to be released for public comment by today, Jan 31st, and written comments are due by March 17th if you are so inclined.

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