Note: We will not be sending the Energy Market Update the week of January 19, 2024 due to the holiday.

Weekly Energy Industry Summary

Commodity Fundamentals

Week of February 12, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $1.76/MMbtu, down $.08/MMbtu, on Monday February 12. 
  • WTI '24 prompt-month crude oil settled at $76.92/bbl., up $0.08/bbl., on Monday, February 12.

Natural Gas Fundamentals - Bearish

  • Prompt-month NYMEX settled at $1.76/MMbtu, down $.08/MMbtu on Monday, February 12. 
  • Natural gas Production hit 107.1 Bcf today, an all-time record.  
  • The weather continues to look bearish of natural gas despite a snowstorm in the Mid-Atlantic and Northeast.
  • Natural gas demand month-to-date relative to the same month last year is down 4.6 Bcf per day with the largest variance in the residential and commercial category.  Low heating demand is driving lower year-over-year demand.
  • LNG exports for February averaged 13.6 Bcf per day, up 0.80 Bcf/day from a year ago.
  • European LNG prices are $7.91 per MMbtu; Asian LNG is $9.44/MMbtu.
  • Calendar NYMEX strips for 2025 through 2029 are $3.43, $3.76, $3.74, $3.71, $3.68.

Crude Oil - Neutral/Bullish

  • The "Neutral/Bullish" designation to crude oil (above), is predicated on the idea that, despite prices falling in recent months, there are approximately 3 million barrels/day of readily available spare crude-production capacity globally -- not a large cushion. Additionally, with war in Europe and the Middle East, a geopolitical event could trigger a supply-side disruption with upside price action.
  • Prompt-month crude oil settled at $76.92/bbl., up $.08/bbl.
  • Year to date, crude oil prices are up 3.2%.
  • Oil prices are up 6% over last week.
  • OPEC on Tuesday stuck to its forecast for relatively strong growth in oil demand in 2024 and 2025 and raised its economic growth forecasts for both years, saying there was further upside potential.
  • OPEC meets in March to discuss next moves.
  • The International Energy Agency expects a "comfortable" oil market in 2024 with demand increasing 1.2 to 1.3 million barrels per day.

Economy - Neutral

  • Inflation at 3.1% in January reflects stubborn pricing pressure, The Wall Street Journal reports.
  • U.S. banking profits plunged 45% in the final months of 2023, The Financial Times reports.
  • Concerns are growing in the commercial real estate markets as real estate loans are coming due amid rising vacancy rates.
  • The S&P 500 reached an all-time high of 5000.
  • Hedge funds are ditching bearish positions in the U.S. dollar -- the currency has climbed 3% this year.
  • Employers hold the cards now as power shifts in the U.S. jobs market. Businesses are making layoffs, forcing staff back to offices and offering smaller wage increases, The Financial Times reports.
  • The 10 year treasury yield gained as the January CPI was hotter than expected.
  • Credit card balances jumped 5% to a new $1.13 trillion record in the fourth quarter.

Weather - Bearish

  • Winter was over before it started.  Winter 2023/24 will come in as a top three warmest since 1950.
  • A snowstorm in the Mid-Atlantic and Northeast drops as much as a foot of snow in some areas.
  • The NorEaster will be short-lived.
  • The 11-15 day outlook shows the colder indices weakening.
  • The bias is for a cooler west by months end and a warmer midcontinent.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending February 2, 2024 are 2,584 Bcf;  a withdrawal of 75 Bcf was reported for the week ending February 2, 2024.
  • Gas inventories are 248 Bcf greater than the five-year average and 137 Bcf greater than the same time last year. 
Values reflect week ending Feb. 9, 2024
Prices reflect week ending Feb. 9, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

0.gif
  • The Mid-Atlantic Region’s forward power prices continue to soften with a lack of heating demand and persistent bearish natural gas fundamentals driven by high production, robust storage levels and a mild winter that’s nearing its end.   Temperature forecasts are starting to see a split in the long range models with the European cooler in the West and milder in the East, while the American shows what the European once had, a storm induced cooler South and milder across the North. The current 11-15 day indices give a little more weight to the European, but a blend of the two would be a reasonable bet.  NYMEX prompt-month gas prices continue to shrug-off any winter risk and are currently trading at multi-year lows.  Power forwards for the 2024-2025 term in the Mid-Atlantic region were another -2% lower over the past week with the Bal’24- 2025 term priced -4% lower while the 2026-2028 terms are pricing -2% lower.  The month-to-date, day-ahead average settlement price for February in West Hub is currently $24.73/MWh or -44% lower than January’s settlement price average and -23% lower than last year.
  • FERC Rejects PJM’s Second Capacity Market Reform Proposal Focused on MSOC - On 10/13, PJM submitted two “companion” filings to FERC proposing a suite of reforms to its capacity market intended to improve resource adequacy in support of the energy transition.  As reported last week, FERC accepted the first filing (ER24-99), which contained helpful improvements particularly to PJM’s capacity accreditation and risk modeling.  On 2/6, FERC rejected PJM’s second filing (ER24-98), which largely focused on the rules governing the development and review of a unit-specific capacity market seller offer cap (MSOC).  Under existing rules, sellers offering higher than $0/MW-day must either select a tariff-prescribed default MSOC value or pursue a unit-specific MSOC for review with the IMM and PJM.  Those seeking a unit specific MSOC must support their value based on the unit’s net Avoidable Cost Rate, which includes a component called “Capacity Performance Quantifiable Risk,” or CPQR, representing the cost of risk associated with potential non-performance penalties.  In its 2/6 order, FERC rejected this second package of reforms after finding that PJM failed to demonstrate that several elements of its filing are just and reasonable.  The Commission also provided guidance on how PJM could potentially cure the proposal’s deficiencies in a future filing.  

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices continue to soften with a lack of heating demand and persistent bearish natural gas fundamentals driven by high production, robust storage levels and a mild winter that’s nearing its end.   Temperature forecasts are starting to see a split in the long range models with the European cooler in the West and milder in the East, while the American shows what the European once had, a storm induced cooler South and milder across the North. The current 11-15 day indices give a little more weight to the European, but a blend of the two would be a reasonable bet.  NYMEX prompt-month gas prices continue to shrug-off any winter risk and are currently trading at multi-year lows.  Power forwards for the 2024-2025 term in the GLR region were another -3% lower over the past week with the Bal’24- 2025 term priced -4% lower while the 2026-2028 terms are pricing -2% lower.  The month-to-date, day-ahead average settlement price for February in AdHub is currently $20.64/MWh or -52% lower than January’s settlement price average and -26% lower than last year, while the final day-ahead average settlement price in Ameren, thus far for February, is $24.20/MWh or -46% lower than January’s settlement price average and -25% lower than last year.
  • FERC Rejects PJM’s Second Capacity Market Reform Proposal Focused on MSOC - On 10/13, PJM submitted two “companion” filings to FERC proposing a suite of reforms to its capacity market intended to improve resource adequacy in support of the energy transition.  As reported last week, FERC accepted the first filing (ER24-99), which contained helpful improvements particularly to PJM’s capacity accreditation and risk modeling.  On 2/6, FERC rejected PJM’s second filing (ER24-98), which largely focused on the rules governing the development and review of a unit-specific capacity market seller offer cap (MSOC).  Under existing rules, sellers offering higher than $0/MW-day must either select a tariff-prescribed default MSOC value or pursue a unit-specific MSOC for review with the IMM and PJM.  Those seeking a unit specific MSOC must support their value based on the unit’s net Avoidable Cost Rate, which includes a component called “Capacity Performance Quantifiable Risk,” or CPQR, representing the cost of risk associated with potential non-performance penalties.  In its 2/6 order, FERC rejected this second package of reforms after finding that PJM failed to demonstrate that several elements of its filing are just and reasonable.  The Commission also provided guidance on how PJM could potentially cure the proposal’s deficiencies in a future filing.  

Northeast Energy Summary

  • Preliminary results for ISO New England’s Forward Capacity Auction 18 applicable to power year beginning June 2027 and ending May 2028 was released late Friday afternoon, February 9. The auction cleared without any zonal separation at $3.58/kW-month which was in the range of expectations but almost $1/kW-month higher than the previous auction. Capacity clearing the auction totaled 31,556 MW, about 1,006 MW more than the 30,055 MW of Net Installed Capacity Requirement deemed necessary for the region. Included in the total cleared was 28,478 MW of generation, including 998 MW of new resources, 2,614 MW (including 105 MW new) of demand resources, including energy efficiency, load management, and distributed generation resources, and 465 MW of imports from New York, Québec, and New Brunswick. With the changes expected for the capacity market/auction going forward this was very likely the last 3-year forward auction to be held for ISO New England.

ERCOT Energy Summary

0.gif

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • Having moved past the two brutal 50-degree days in the LA Basin late last week, the coldest days of the winter now appear to be behind us. Noticeable warmer trends are showing in the forecast for the PNW, Western Canada and down into the Rockies next week and into the 11–15-day period. Seasonable temperatures will prevail across the Golden State for the next week, then storminess will make a return to California this weekend, continuing through early next week with heavy rain at times along the coast and significant snowfall along the Sierra. Although snowpack saw an impressive uptick from last week’s storms, this next one will help close the gap between totals so far this water year and last year’s pace.
  • The entire West starts to warm today which will drive gas demand numbers lower. Even with the elevated demand over the past week, operators struggled to draw any volume out of the storage caverns. SoCalGas saw imports post over 3 Bcf per day which kept their inventory levels effectively unchanged over the last week (really since the end of January), showing just over 85 Bcf in this morning’s reports. That’s about 34 Bcf over where they were one year ago. PG&E managed to draw about 4 Bcf from storage since last week, leaving them with 120 Bcf left in the tank or nearly 69 Bcf more than last year at this time. SoCalGas is in a slightly better condition proportionally than PG&E. If you look at the total capacity of the SoCal storage system, they have 34 Bcf they can inject into if they go to capacity. PG&E has 45 Bcf or so available, total inventory is 166 Bcf for the system. Pressure should remain on the pricing until further notice. Looking ahead, both operators need to get volume out of the ground or face a disruptive summer of high inventory operational flow orders (OFOs). Every cavern across the west is in the same boat, they have to get gas out of the ground to create space for the injection season. When does that begin? Take a look at daily cash prices, they’re already posting below summer futures – PG&E daily on Monday was $0.84 below Q3 and SoCal daily was $2.35 below. Time to start injecting.
  • The CAISO grid continues in a spring-like rinse and repeat cycle where solar production floods the SP15 zone mid-day causing a ~$15 spread to open relative to peak period prices in NP15. That binding constraint on the tie lines is showing up in real time prices as well as they nosedive into negative territory mid-day and curtailment volumes mount. Looking ahead, we have more solar showing up over the next couple of days as warmer weather and clear skies are in play across Southern California. Once the weekend rolls around we should see cloud cover move in along with precipitation early next week which should allow a sense of balance to return to the grid.

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

  • Energy Market Intel Webinar - Register for our next market update webinar on Wednesday, February 21 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 - Stay tuned for our next Fortunato & Friends webcast featuring Chief Economist, Ed Fortunato and a special guest to be announced.
  • 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.