Weekly Energy Industry Summary

Commodity Fundamentals

Week of June 17, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $2.79/MMbtu, down $.09/MMbtu, on Monday, June 17. 
  • WTI '24 prompt-month crude oil settled at $80.43/bbl., up $1.88/bbl., on Monday, June 17.

Natural Gas Fundamentals - Bullish

  • Prompt-month (July) NYMEX natural gas futures settled at $2.79 per MMbtu, down $.09 per MMbtu on Monday, June 17. 
  • The general upward bullish trend in natural gas has persisted for several weeks as production cuts, LNG exports, and the arrival of summer are working to mop up the excess supply that was prevalent in the first quarter and beginning of the second quarter.
  • Demand for electric-power generation is the primary driver in the near and mid-term market and the weather throughout much of the country takes a decided shift to summer over the next week.
  • The weather forecast has shifted over the past week moving to a "hottest summer since 1950" outlook.
  • The shift in weather provides support and potential upside to the gas market in the near and midterm.
  • Producers are bringing some shut-in volumes back on line to meet higher prices -- production has recently been just over 100 Bcf per day after hitting 97.5 Bcf per day in early/mid May.

Crude Oil - Bullish

  • The events and geopolitical tensions remain in this market providing the potential for upside in crude oil despite recent very near-term softness in crude.  For this reason, the headline on the market condition of crude oil remains "Bullish" until further notice.
  • WTI prompt-month crude bumped up on Monday, June 17, settling at $80.43 per barrel, up $1.88.
  • Crude oil is up about 4% this past week.
  • Year to date, gasoline prices are up about 14%.
  • In general, crude oil has been trading in a range of $75 to $82 for several weeks. 
  • A break out above $84 per barrel would signal additional bullish sentiment.
  • A break down below $75 would signal additional bearish sentiment.

Economy - Neutral

  • May retail sales rose 0.1%, weaker than expected.
  • Wholesale prices fell 0.2% in May.
  • The Fed held rates steady in its last meeting.
  • Consumer prices were up in May by 3.3% over the same period last year.
  • The ten year Treasury Note fell to 4.3% last week.
  • Non farm payrolls expanded by 272,000 for May, well ahead of estimates of 190,000.
  • Job gains were concentrated in health care, government, and leisure and hospitality.

Weather - Bullish

  • A major heat wave is moving through the Midwest and a large portion of the East Coast this week.
  • The summer forecast has shifted over the past week, going from a top five-hottest since 1950 to "the hottest since 1950."
  • The summer outlook is computed on cooling-demand days that are population weighted -- thus, 2024 may be the all-time record for gas-fired electric power generation -- a supportive feature in the summer natural gas market.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending June 7, 2024 are 29743 Bcf;  an injection of 74 Bcf was reported for the week ending June 6, 2024.
  • Gas inventories are 573 Bcf greater than the five-year average and 364 Bcf greater than the same time last year. 
Values reflect week ending Jun. 14, 2024
Prices reflect week ending Jun. 14, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

0.gif
  • The Mid-Atlantic Region’s forward power prices sold-off once again after a strong rally in natural gas prices in the early part of the week.  An abundance on natural gas supply continues to cap some of the upward volatility that we have seen of late, despite temperature forecasts calling for temps to be upwards of 8 degrees F higher than normal.  Stronger heat is expected to arrive by the middle of this week, where low to mid 90’s are forecast across population centers in the Midwest and along the East coast.  Future power prices were -5% lower over the past week in the Mid-Atlantic region for the 2025-2029 term average, with the Cal’25/’26 average being -3% lower while the Cal’27/’28 average being -7% lower.  Current index settlement prices remain lower as well in June.  The day-ahead settlement price in West Hub for this month is currently averaging $26.08MWh, which is -21% lower than May’s settlement price average as well as -5% lower than a year ago.
  • This week is now forecast to be the hottest 3rd week of June since 1950 with roughly 64 PWCDD’s nationwide.  Much of the heat is driven by temperatures averaging more than 8 degrees above normal from the Midwest into the East, with widespread above normal temperatures across the South.  The 2024 summer forecast for peak demand is 151,254 MW, according to the 2024 PJM Load Forecast Report.  PJM issued a Hot Weather Alert for its Mid-Atlantic and Southern regions starting on June 13 and remaining in effect through Friday, June 21.  MISO is at risk of implementing Energy Emergency Alerts (EEAs) for above-normal summer peak load with unplanned outage conditions like those observed last summer. 

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices sold-off once again after a strong rally in natural gas prices in the early part of the week.  An abundance on natural gas supply continues to cap some of the upward volatility that we have seen of late, despite temperature forecasts calling for temps to be upwards of 8 degrees F higher than normal.  Stronger heat is expected to arrive by the middle of this week, where low to mid 90’s is forecast across population centers in the Midwest and along the East coast.  Future power prices were -5% lower over the past week in the GLR region for the 2025-2029 term average, with the Cal’25/’26 average being -2% lower while the Cal’27/’28 average being -8% lower.  Current index settlement prices remain lower as well in June.  The day-ahead settlement price in Ameren for the month is currently averaging $25.18/MWh, which is -8% lower than May’s settlement price average as well as -14% lower than a year ago, while in MichHub the month-to-date settlement price average is $26.84/MWh or -6% lower than May’s average and -11% lower than a year ago.
  • This week is now forecast to be the hottest 3rd week of June since 1950 with roughly 64 PWCDD’s nationwide. Much of the heat is driven by temperatures averaging more than 8 degrees above normal from the Midwest into the East, with widespread above normal temperatures across the South. PJM issued a Hot Weather Alert for its Mid-Atlantic and Southern regions starting on June 13 and remaining in effect through Friday, June 21.  The 2024 summer forecast for peak demand is 151,254 MW, according to the 2024 PJM Load Forecast Report. MISO is at risk of implementing Energy Emergency Alerts (EEAs) for above-normal summer peak load with unplanned outage conditions like those observed last summer.

Northeast Energy Summary

  • During the May 14 the New England Power Pool Reliability Committee Meeting, ISO reviewed its current thinking on two tools used to assess and regional energy adequacy.  To be based on results from ISO-NE’s 21-day energy assessment tool the Probabilistic Energy Adequacy Tool (PEAT), the Regional Energy Shortfall Threshold (REST) will establish an acceptable level of energy adequacy risk in collaboration with the New England states and stakeholders.  Once a REST is developed, ISO-NE can then consider how to meet the new energy adequacy reliability target, with solutions ranging from market design improvements to infrastructure investments.  ISO-NE also reviewed stakeholder feedback received in response to a survey sent in late March seeking stakeholder input on setting a REST.  ISO-NE acceded to stakeholder feedback to make the REST value more customer-centric by expressing it in a more relatable “precent of load” manner.  The PEAT’s Winter 2027 and Winter 2032 sensitivity results illustrated a wide range of energy shortfall risks, the most extreme of which (full nuclear fleet retirement with no replacement and capping offshore wind at 1.6 GW) showing as much as 1 million MWh of energy shortfalls. Hence the importance of setting a REST as a “line in the snow” beyond which ISO-NE will deem energy shortfalls to no longer be manageable.  While ISO-NE is advocating a probabilistic and quantitative approach for setting a REST, ultimately it will look to the New England states to pick a standard and cost/reliability tradeoff. ISO will continue the stakeholder process throughout 2024 and expects to begin discussions on developing solutions to a achieve a given REST in 2025.
  • With an intense heat wave expected to roll into the region from June 18 through the 20th, ISO New England has forecasted a YTD peak of 23,750 MW on Thursday, June 20. This would fall short of the grid operators pre-summer forecasts of 24,553 MW under “typical” weather. Last summer’s demand peaked on July 6, 2023 at 22,975 MW; but for the first time since 1983 the annual peak occurred outside of the meteorological summer months of June through August on September 7 when coincident peak demand reached 23,623 MW. The all-time coincident peak demand value in New England occurred on August 2, 2006 when it hit 28,038 MW during an extended heat wave.
  • Recently, Governor Hochul announced the New York State Energy Research Development Authority (NYSERDA) finalized contracts with two statewide-funded offshore wind projects, clearing the way for construction on the projects off the coast of Long Island.  The projects – the 810 MW Empire Wind 1, backed by Equinor, and the 924 MW Sunrise Wind, being developed by Ørsted and Eversource – are slated to begin providing power by late 2026.  The projects have indexed strike prices of $146 per MWh for Sunrise Wind and $155 per MWh for Empire Wind.  Equinor expects to make a final investment decision and financial close by the end of 2024.  The company also plans to bring in a partner to reduce its exposure, according to an announcement.  These final deals mean New York, after four rounds of solicitations run by NYSERDA, has two offshore wind projects under contract.  Citing supply chain difficulties and rampant inflation, the developers of these projects sought increases to their previous NYSERDA contracts and were ultimately rebuffed by the Public Service Commission (PSC) in October.  As a result, the projects cancelled the prior NYSERDA contracts and rebid the projects, albeit at higher prices.  Empire Wind has received all of its requisite siting permits and both projects have already received federal and state approvals for onshore transmission work.  With the NYSERDA contract negotiations completed, the final deals clear the way for construction.  Once the projects begin operation, they will receive NYSERDA Offshore Renewable Energy Certificates paid for by all ratepayers in the state.

 

ERCOT Energy Summary

0.gif

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • We’ve written about the “May Grey” and “June Gloom” conditions often enough as they have defined the environment in SoCal for the last couple of months. The terms are rooted in the marine layer which is a low-level cloud cover that exists over the cool Pacific waters and is often blown inland by onshore winds from high pressure over the Pacific Ocean in the spring. The cloud deck has been persistent and thick enough that prior to this weekend our favorite LA Basin reference point, Burbank Airport, has only reached the 80o mark four times this year. There was a brief interruption to this pattern over the weekend as the reporting station notched three more instances of temperatures starting with an eight before the clouds returned to start this week. Another round of warming is projected as the Eastern based heat will begin to expand back into the West towards the end of this week, ushering in widespread above to much-above normal temperatures for most interior population centers.
  • The slow glide to typical summer conditions in the Golden State has benefited the energy buyer as there is plenty of supply and really no home for it with the cooler temperatures having kept gas and power demand at minimums, abundant sun over the interior unleashing vast quantities of residential and commercial solar generation, while both the battery and hydro system delivered plenty of megawatt hours and help the CAISO dispatchers shape the deliveries throughout the day. The weekends are far better for the energy consumer than the weekdays, but Monday's day-ahead auction results for flow today show some anticipation of better things to come as SP15 not only crawled out of the Sunday negative territory during the peak period but broke into double digits at $16.96 per MWh. NP15 cleared at $19.98 for the same sixteen-hour peak block. The relationship between the two is notable as it reflects only a couple dollars of congestion whereas $30+ spreads were not uncommon in recent weeks. The reason behind the collapse in the spread is the warmup in the desert cities that is seeing grid operators export power from SP15 to neighboring states reducing the need to curtail solar projects during the midday hours. As the interior heat becomes more consistent, we expect the flow of megawatts to continue down this road until the California coastal populations centers warm and the load serving entities in SoCal compete for those same electrons. On the gas transport system there are some constraints in play, but these are quite helpful as the call to action without them would be for even lower daily index prices as the storage fill lines are creeping closer to tank tops and reducing injection capability (except for Aliso Canyon). As such, west basis prices will remain under pressure until further notice.
  • The CAISO's board last week approved a sweeping overhaul of its process for vetting and interconnecting new generation and energy storage resources needed to fuel the state's clean energy transition. The reform follows a yearlong stakeholder initiative aimed at breaking a logjam of more than 500 GW (that’s 500,000 MW) of capacity backlogged in the CAISO's interconnection queue, and as the CAISO seeks to comply with a FERC order, issued in March, to move to a "first-ready, first-served" cluster study approach for processing new requests to interconnect. The proposed reforms, which require FERC approval, will move to a scoring criteria that give utilities, CCAs and other load-serving entities greater weight in determining which projects advance. Developers were none too happy with this plan as many said the new process would discourage competition and voiced concern that load-serving entities are already seeking concessions from developers in exchange for points under the new scoring criteria, such as outsized deposits to secure purchases. For instance, one developer calculated that it would be required to pay a $1.5M deposit to advance a 300 MW energy storage project 10 years before its anticipated completion as part of one unnamed LSE’s RFP process. The CAISO board acknowledged the changes would be disruptive but noted it was necessary to plow forward as there is a need to connect 7,000 MW of new resources per year for the foreseeable future.

 


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

Coming soon from Constellation Customer Insights: Help us provide you with greater service by completing our online study later this month. For a limited time, eligible customers can choose to accept an incentive for taking the time to provide feedback.

  • Energy Market Intel Webinar - Register for our next market update webinar on Wednesday, June 19 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.
  • Fortunato & Friends Webcast - Register for our next Fortunato & Friends webcast on Thursday, August 22 at 2 p.m. ET featuring a conversation with Constellation's Chief Economist, Ed Fortunato and Constellation Chief Executive Officer, Joe Dominguez!
  • 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.