Weekly Energy Industry Summary

Commodity Fundamentals

Week of July 8, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $2.37/MMbtu, up $.05/MMbtu, on Monday, July 8. 
  • WTI '24 prompt-month crude oil settled at $82.33/bbl., down $.83/bbl., on Monday, July 8.

Natural Gas Fundamentals - Neutral/Bullish

  • Prompt-month NYMEX natural gas futures settled at $2.37 per MMbtu, up $.05 per MMbtu on Monday, July 8. 
  • Despite very bullish hot weather driving strong demand for electric-power generation, prompt-month natural gas has flagged to the downside for seven of the last eight days of trading.
  • Hot temperatures throughout the country have driven record demand for natural gas-fired electric power this summer.
  • Power generation for the month of July 2024 has averaged 47.4 Bcf per day, nearly half of total U.S. natural gas production and an increase of 2.8 Bcf per day over the same period last year.
  • On the other hand, LNG exports are off over the past week, down approximately 2.8 Bcf per day as some issues at the Freeport LNG export terminal, coupled with disruptions caused by Hurricane Beryl, have stymied outflows, providing a supply cushion in the teeth of record power generation demand.
  • Production of natural gas has been moving upward over the past three weeks and is consistently near 102 Bcf per day, after posting a low of 97.5 Bcf per day in mid-May.
  • Natural gas strip prices 2025-2029 are: $3.43, $3.78, $3.79, $3.74, and $3.66 respectively.

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 down on Monday, July 8, settling at $82.33 per barrel, down $.83.
  • Concerns over the effects of Hurricane Beryl on oil producing and refining infrastructure appear to be overblown as Reuters and other industry news outlets report little if any damage.
  • Generally, there is not a lot of news this week in the oil patch.  The crude oil market continues to be bound in a range with $75 being the bottom and $85 being the top. 
  • There is some discussion of a potential cease-fire deal in Gaza, but that has been touted dozens of times.  Meanwhile the war continues and the potential for a broader conflict between Israel and Hezbollah is real.

Economy - Neutral

  • The U.S. economy added 206,000 jobs last month and unemployment ticked up to 4.1%, a sign of slack in what has been a strong labor market.
  • Federal Reserve Chair Jerome Powell said he was pleased with how inflation had resumed a downtrend following a rebound at the start of the year.
  • U.S. auto sales are forecast at 15.7 million units; that would be a 1.3% increase over 2023.
  • The June CPI will be released at the end of this week.
  • The University of Michigan's latest data on consumer sentiment will be released later this week.
  • Generally, the economy is clearly cooling, inflation is cooling, unemployment is edging upward, and the Fed is signaling a rate cut in the coming quarter.

Weather - Bullish

  • June 2024 was the hottest on record since 1950.
  • The remnants of Beryl will move through the Midwest today and tomorrow. 
  • In the West it is extremely hot and in the Southwest, it is broiling.
  • The East coast and the Southeast are very hot and humid.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending June 21, 2024 are 3134 Bcf;  an injection of 32 Bcf was reported for the week ending June 28, 2024.
  • Gas inventories are 496 Bcf greater than the five-year average and 275 Bcf greater than the same time last year. 
Values reflect week ending Jul. 5, 2024
Prices reflect week ending Jul. 5, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

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  • The Mid-Atlantic Region’s forward power prices were slightly higher this week despite natural gas prices falling the past 8 sessions last week to a 7-month low.  Incremental increases in natural gas production along with high storage levels, for this time of summer, continue to keep the lid on prices thus far, despite a very hot start to summer.  Temperatures in the West continue to boil and set new records with highs in the 100s and 110s common across the region, while second place goes to the East Coast and Southeast with highs in the 90s.  A cool front moving across the East will temper some of the demand later this week, but we should see a return to the heat there next week.  Future power prices were 1% higher over the past week in the Mid-Atlantic region for the 2025-2029 term average, but -7% lower over the past month.  Current index settlement prices are also higher due to the increased temperature demand associated with this hot summer thus far.   The day-ahead final settlement price in West Hub for June averaged $31.12/MWh, which is -6% lower than May’s final settlement price average but 13% higher than a year ago. 
  • FERC Denies Complaint Challenging PJM’s Capacity Accreditation Practices for Wind/Solar - In November 2022, Dr. Roy Shanker, an independent consultant, filed a complaint alleging that PJM violated its governing documents by including output from Energy Resources in its process for determining intermittent resources’ Accredited Unforced Capacity (UCAP) available for sale in PJM’s capacity auctions.  The complaint centered on PJM’s practice of including historical energy output in excess of a unit’s capacity interconnection rights (CIRs) in the Accredited UCAP calculation.  CIRs, granted in a generator’s interconnection agreement, are the amount of firm deliverability reserved for a generator on the transmission network.  Dr. Shanker argued that PJM’s accreditation practice overstates these resources’ effective UCAP and results in PJM relying on a unit capacity commitment that exceeds the transmission system’s ability to accommodate the unit output at peak load.  After Dr. Shanker filed his complaint, in April 2023, FERC accepted PJM tariff revisions to cap a resource’s modeled output in the accreditation model at its demonstrated deliverable output (i.e., at a resource’s CIR-level).  On 6/27, FERC issued an order denying the complaint, finding that (1) PJM’s revisions accepted in April 2023 effectively resolved the complaint’s central issue, rendering the complaint moot as to the prospective relief requested, and (2) PJM did not violate its governing documents, as the complaint alleged (pointing to the plain language of PJM’s tariff).  Commissioner Christie dissented from this latter finding (noting he would have requested more evidence for the record), but concurred with FERC’s statement that, even if the alleged violations had occurred, it would be improper to rerun past auctions.

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices were slightly higher this week despite natural gas prices falling the past 8 sessions last week to a 7-month low.  Incremental increases in natural gas production along with high storage levels, for this time of summer, continue to keep the lid on prices thus far, despite a very hot start to summer.  Temperatures in the West continue to boil and set new records with highs in the 100s and 110s common across the region, while second place goes to the East Coast and Southeast with highs in the 90s.  Future power prices were 1% higher over the past week in the GLR region for the 2025-2029 term average, but -7% lower over the past month.  Current index settlement prices are also higher due to the increased temperature demand associated with this hot summer thus far.   The day-ahead final settlement price in Ameren for June was $29.77/MWh, which is 9% higher than May’s final settlement price average as well as 2% higher than a year ago, while in Michigan the final settlement price was $31.55/MWh or 11% higher than May’s average and 4% higher than a year ago. The day-ahead final settlement price in ComEd for June averaged $24.95/MWh or 1% higher than May’s final settlement price average, but -3% lower than a year ago, while in AdHub the final settlement price average was $29.35/MWh or -4% lower than May’s average, but 8% higher than a year ago. 
  • PJM Energy Transition 2024 Report - On 6/27, PJM presented to the Markets & Reliability Committee a new study titled Energy Transition in PJM: Flexibility of the Future.  This is the latest installment of a multiphase effort to evaluate impacts of the energy transition.  An earlier report, published on 2/24/23 and dubbed the “4R Study,” covered Resource Retirements, Replacements, & Risks.  The 2023 study observed four energy transition trends that, in combination, lead PJM to project possible resource adequacy shortfalls as soon as 2026/27 “due to a potential timing mismatch between resource retirements, load growth, and the pace of new generation entry.” The study published updates assumptions for the various scenarios evaluated in the 4R Study, including increasing levels of potential generation retirements and evolving policies advancing large amounts of renewables, storage resources and cross-sector electrification.  Based on this updated analysis, PJM reiterates that accelerating the pace of new entry is critical to maintaining reliability and highlights that interregional transfer capability and multiday dispatchable resources are becoming increasingly important.  The new report is informational in nature and does not contain any particular recommendations, nor does it trigger any immediate action. Instead, PJM will use its findings to guide prioritization of issues in in PJM committee meetings and task forces addressing market design and system planning.

Northeast Energy Summary

  • On June 25, the Rhode Island Public Utilities Commission (RIPUC) opened Docket 24-26-EL to investigate the current state of voluntary and mandatory renewable energy markets in Rhode Island.  The docket is a requirement from 2022 legislation that requires the commission to assess the impact of allowing voluntary renewable energy purchases to count toward meeting the mandatory Renewable Energy Standard annual percentages.  The RIPUC is seeking stakeholder input on the scope of the investigation, which includes the types and quantity of voluntary RECs, the impact of counting voluntary RECs toward the mandatory REC requirement, if integrating voluntary and mandatory REC procurement would create market efficiency, and why entities procure voluntary RECs above 100% renewable.  The notice of the investigation also seeks input on additional questions related to the proposed scope.  Comments are due July 22 and the final report from the RIPUC is due September 1.
  • On June 20, the New York State Energy Research and Development Authority (NYSERDA) announced the release of its 2024, Tier 1 REC solicitation for onshore renewables.  For the first time, NYSERDA did not specify a target number of Renewable Energy Certificates (RECs) that it is seeking to procure, and instead stated that “the number of Tier 1 RECs procured in the solicitation is subject to NYSERDA’s discretion and the review and approval of the New York Department of Public Service.”  NYSERDA has sought to purchase approximately 4.5 million Tier 1 RECs annually in prior solicitations.  However, it has taken flak recently for falling short of its procurement targets and corresponding renewable energy goals.  Bid Proposals are due by 8/8/24, and proposed projects must reach commercial operation no later than 11/30/29 – an indication NYSERDA is seeking to draw bids from roughly the same pool of projects that participated in its prior solicitation.  Other key provisions of the RFP include inflation indexing, labor provisions, stakeholder engagement requirements, new requirements emphasizing the importance of climate resiliency in project design, Disadvantaged Community commitments, and agricultural land preservation.  To reduce financing costs, NYSERDA encourages applicants to apply for long term, fixed-rate Loan Programs Office financing.  The New York Power Authority (NYPA) and Long Island Power Authority (LIPA) may choose to issue their own solicitations and/or contract with NYSERDA to purchase Tier 1 RECs that may be procured under this RFP to fulfill their proportional shares of the statewide Tier 1 targets.  NYSERDA also noted it anticipates releasing its Clean Energy Standard Biennial Review in July, in which it plans to discuss progress toward the state’s renewable energy and zero emission resource targets, funding used to support reaching those targets, and potential barriers toward reaching the goals.

ERCOT Energy Summary

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CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • A long-duration heat wave continues to change the record books across the West as a strong ridge remains anchored over the region. Many record highs were set over the weekend, and more are expected this week. New all-time record highs were set in Las Vegas on Sunday (120°) and Palm Springs on Friday (124°), while tying in Bishop (111°), Barstow (118°), Ukiah (117°), and Lancaster (115°). More daily record highs are forecast for interior cities each of the next four days. Daily record highs were also seen over the last few days in the PNW, including Portland which had its first 100°+ high of the year on Sunday. In fact, today (Tues) is forecast to be the BPA region’s 4th-hottest day since 1950 in population-weighted cooling degree day (PWCDD) terms. While the attention has shifted away from coastal California as the expectations are for temperatures to fall into the merely above-average bucket, conditions could still see highs peak in Sacramento in triple digits again on Thursday and upper-90s in the LA Basin on Wednesday. Looking ahead towards next week, a similar pattern is supported in the models while California remains moderate and closer to normal. Longer term thoughts did not change much since last week as the models continue to support a hotter than normal West with the greatest anomalies focused across the interior West.
  • Notable event in the West gas market has been the series of High operational flow order (OFO) notices (some at the Stage 3 level) that both PG&E and SoCalGas have been posting while temperature records have been falling over the last week and are set to carry into this week. Regular readers of our updates know this is a direct result of the gas storage hangover that continues to plague the California LDCs since the winter of no demand left most caverns full or near tank tops. With plenty of gas in storage and import pipelines operating with few constraints, both PG&E and SoCalGas need to keep hitting the High OFO button to slow down inflows and encourage the gas to stay back in the producing regions. That this is happening during the hottest days of the season so far does not bode well for what the natural gas landscape out West will look like later this year when temperatures and demand taper off.
  • California's power grid is handling the heat well as the auction clears have stayed below the century mark and have settled with little spread in price during the peak hours between NP15 and SP15. For flow today, SP15 takes the lead at $69.42 MWh over the $64.14 index in NP15. This is a flip from the last week as well as the last several months as NP15 was consistently the premium market, in some cases by over $20 MWh, as solar generation overwhelmed demand in the south and drove prices into negative territory. Since Friday, the CAISO grid has lost 3 GWs of peak load which has helped keep the day-ahead settlements in check, but the power needed by California’s neighbors to the north and east has skyrocketed, encouraging them to lean on the CAISO for that final megawatt needed to balance their grids. Cash prices at hubs external to the CAISO like Mid-C and Palo Verde reflect the price signal for megawatts to move out of California, in this case from SP15 thus closing that gap. As the extreme temperatures continue across the interior west, the California natural gas fleet is going to remain the easily accessible marginal megawatt needed for the adjacent regions to balance their grids. Where it gets interesting is if coastal California joins the party and heats up at the same time, sparking a cage fight for megawatts in a region that finds itself with fewer and fewer to spare.

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