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Weekly Energy Industry Summary

Commodity Fundamentals

Week of July 23, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $2.25/MMbtu, up $.12/MMbtu, on Monday, July 22. 
  • WTI '24 prompt-month crude oil settled at $79.79/bbl., down $.34/bbl., on Monday, July 22.

Natural Gas Fundamentals - Neutral

  • Prompt-month NYMEX natural gas futures settled at $2.25 per MMbtu, up $.12 per MMbtu on Monday, July 22. 
  • After pressuring the $2 per MMbtu level last week, prompt-month natural gas has recovered modestly.
  • The Freeport LNG export terminal is recovering and expected to be fully operational in the coming week.
  • Freeport shut down on July 7 backing up 2-plus Bcf per day of gas into the domestic market and was a factor in the recent softening of gas prices.
  • The weather report for the next two weeks is supportive-to-bullish.
  • Natural gas demand for electric power generation is strong, averaging 48.4 Bcf per day this month, an all-time record.
  • Production of natural gas for the month of July has averaged 101.8 Bcf per day versus 102.1 Bcf per day for the same period last year.
  • Industrial demand for the month of July averaged 21.7 Bcf per day, flat to the same period last year.
  • Natural gas strip prices 2025-2029 are: $3.40, $3.73, $3.76, $3.70, and $3.64 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.
  • Geopolitical risks are in fact rising. Israel, for the first time, struck inside Yemen following a deadly drone attack launched by the Iran-backed Houthi rebels on Tel Aviv. Israel carried out air strikes on the Houthi-controlled Red Sea port of Hodeidah in Yemen.
  • The head of the Houthis in Yemen pledged on Sunday to launch more attacks against Israel.
  • Things are also heating up on Northern Israel. Iran-backed Hezbollah has been firing missiles into Israel and Israel has been returning fire and taking pre-emptive action against Hezbollah forces and leadership.
  • WTI prompt-month crude bumped down on Monday, July 22, settling at $79.79 per barrel, down $.34.
  • Crude oil continues to trade in a $10 range, with the bottom at $75 and top at $85.

Economy - Neutral

  • Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans, The Wall Street Journal reports.
  • The spring home-buying season, usually the busiest time of year for the housing market, was a dud this year, The Wall Street Journal reports.
  • Employers added 206,000 jobs in June, while the number of jobs created in May was revised down to 218,000 from the previous estimate of 272,000.
  • U.S. economic annualized growth was adjusted upward to 1.4%, the Commerce Department reports.
  • Most "Fed watchers" are expecting a rate cut by October.

Weather - Bullish

  • June 2024 was the hottest on record since 1950.
  • July is shaping up to be the hottest on record since 1950 as well.
  • It continues to be very hot in the West.
  • Wetter than normal conditions will persist in the South and Southeast.
  • The heat ridge in the west will move to the midcontinent next week bringing above to much-above temperatures there and in the East.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending July 12, 2024 are 3209 Bcf;  an injection of 10 Bcf was reported for the week ending July 12, 2024.
  • Gas inventories are 465 Bcf greater than the five-year average and 250 Bcf greater than the same time last year. 
Values reflect week ending Jul. 19, 2024
Prices reflect week ending Jul. 19, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

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  • The Mid-Atlantic Region’s forward power prices were lower on the week as depressed natural gas prices continue to exert downward pressure on them.  We had another cooling demand loss over the weekend. Most of this happened during the first week of the forecasts with a cooler East and South due to a wetter than normal pattern with the main heat ridge over the West. The pattern becomes less active next week as the western ridge tries to bridge eastward.  Future power prices were -3% lower the past week in the Mid-Atlantic region for the 2025-2029 term average as well as -6% lower over the past month.  Current index settlement prices continue to clear at higher prices due to the increased summer load.  The day-ahead final settlement price in West Hub thus far for July is averaging $47.30/MWh, which is 52% higher than last month’s final settlement price average and 25% 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 lower on the week as depressed natural gas prices continue to exert downward pressure on them.  We had another cooling demand loss over the weekend. Most of this happened during the first week of the forecasts with a cooler East and South due to a wetter than normal pattern with the main heat ridge over the West. The pattern becomes less active next week as the western ridge tries to bridge eastward.  Future power prices were -3% lower over the past week in the GLR region for the 2025-2029 term average as well as -6% lower over the past month.  Current index settlement prices continue to clear at higher prices due to the increased summer load.  The day-ahead final settlement price in Michigan thus far for July is, averaging $35.23/MWh, which is 12% higher than last month’s final settlement price average but -7% lower than a year ago, while Ameren prices for the month are currently averaging $33.01/MWh or 11% higher over the past month, but -9% lower over the past year last July.
  • PJM Market Design Project Road Map - As part of their Ensuring a Reliable Energy Transition effort, PJM presented the Market Design Project Road Map during the 7/10 Market Implementation Committee.  PJM highlighted Phase 2 of Capacity Market Reform slated for 2025 and 2026 which will include seasonal design, improved locational considerations of supply and demand, and the forward period of the auction.  PJM also discussed refiling portions of ER24-98 capacity reforms FERC rejected earlier this year, updating the Cost of New Entry input to the capacity demand curve for the 2027/28 delivery year, and conducting the quadrennial review of the demand curve early for the 2029/30 delivery year.  The Market Design Project Road Map is a living document and will be updated as issues are opened or closed and timelines shift.

Northeast Energy Summary

  • During their July 9 Markets Committee (MC) meeting, ISO-NE previewed its workplan to implement Capacity Auction Reforms (CAR) that will transition the forward, annual capacity market to a prompt and seasonal market with accreditation reforms.  The MC discussion kicked off consideration of the CAR scope, with a focus on the objectives that will guide the scope discussions, and several items that have been identified as being of interest to the ISO and/or stakeholders.  CAR must be in place for Capacity Commitment Period (CCP) 19, scheduled to start on 6/1/28.  Accreditation reforms will leverage the ISO’s work during the Resource Capacity Accreditation (RCA) project, including the framework to link capacity accreditation values to a resource’s marginal reliability impact.  However, CAR will also provide opportunities to reassess some design elements that could not be considered in RCA.  CAR scope objectives include (1) complete the work in time for CCP 19 to facilitate benefits of CAR to region and confidence to marketplace; (2) prioritize design work that provides the most value to the region in the shortest time; and (3) avoid project scope expansion or changes that risk Objectives 1 and 2.  CAR core scope items are broadly described as (1) prompt; (2) seasonal; and (3) accreditation.  The ISO has discussed that it may consider other improvements and enhancements for later commitment periods, after CAR has gone into effect.  These include, but are not limited to, net cone updates, development of a market constraint to reflect gas availability, offer price formation and treatment of retained resources.  ISO-NE plans to continue to refine its scope and design objectives and share with stakeholders by October.
  • On July 12, the Massachusetts Department of Energy Resources (DOER) filed an emergency rulemaking for the Clean Peak Energy Standard, which provides incentives to clean energy technologies that supply electricity during peak demand periods.  The changed rule lowers the 2024 Minimum Standard from 7.5% to 4%.  DOER stated that the change is necessary to protect ratepayers from the costs associated with an anticipated undersupply of available Clean Peak Energy Certificates, leading to high alternative compliance payment collection.  Additionally, the Solar Carve-out Program, an ending program designed to facilitate development of solar resources, extended its final compliance year from 2023 to 2024 to absorb excess SRECs-that were deposited into the 2022 Clearinghouse Auction resulting in additional and unexpected costs to load.
  • New York Launches Offshore Wind RFP - On 7/17, New York launched its fifth offshore wind solicitation while celebrating the groundbreaking for Sunrise Wind, Orsted’s 924 -MW project located off the east coast of Montauk. So far, the State has only two New York State Energy Research Development Authority (NYSERDA)-contracted projects and one operational set of turbines serving Long Island. Proposals are due by 9/9. NYSERDA previously awarded the project a contract in 2019; developers subsequently sought increases to that agreement and were ultimately rebuffed by the Public Service Commission in 2023. As a result, the project cancelled its 2019 NYSERDA contract and rebid the project into the authority’s 2024 solicitation, albeit at a higher price. The project now has an indexed strike price of $146 per MWh, significantly higher than the initial contract. Officials in New York continue to press forward with developing offshore wind, which is essential if the state is to meet its lofty renewable electricity goals. Projects bid into this solicitation are not expected to be online in time for the 2030 target for 70% renewables enshrined in state law in 2019. Once the projects begin operation, they will receive NYSERDA Offshore RECs paid for by all ratepayers in the state.

ERCOT Energy Summary

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CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • The predominant theme of July has been frequent and intense heat in the West where daytime highs have scorched the 5-year averages. This past weekend featured significant heat in the PNW and DSW yet again as Vegas set record highs (113° Sat and 114° Sun) and Spokane (107° Sun), the latter just 2° shy of its all-time record amid a record 17-day stretch of 90°+ highs. Excessive Heat Warnings remain in effect for the interior Northwest, Southwest and Central Valley of California. Sacramento is expected to peak in the low to mid-100s over the next three days, while Fresno peaks near 110° today. If the DSW is lucky it will see monsoonal moisture move in and knock temperatures down, counterbalanced by the risk of the thunderstorms that come along and sparking wildfires. Wildfires continue to eat away at areas of western Canada and the Interior Northwest, with smoke from these fires posing some cooler risks to areas of the interior west. A cooldown does appear to be in the cards for the West at the end of this week as temperatures moderate, but the reprieve is fleeting as current models suggest the heat comes screaming back in the 11–15-day outlooks.
  • Despite some maintenance on the gas pipelines restricting flows prices have held steady with PG&E city gate consistently printing in the three dollars per MMBtu range and SoCal’s gate to the city pricing anywhere from $0.50 to $1.00 behind it. Demand on the system remains strong as power generation takes advantage of the low prices keeping gas from flowing into the storage caverns in any material volumes. The Monday effect saw the cash indices clear at $3.77 and $2.80 respectively for PG&E and SoCal’s city gates, with balance of the month still pricing under these levels despite the strong heat expectations through the end of the month.
  • The more noteworthy events are appearing on the electric grid as heat is keeping an upward pressure on the day ahead index during the solar fadeaway hours increasing the distance in prices between midday and HE19 – 22 in the CAISO. Interestingly, HE20 has been the runaway winner in terms of pricing as evening loads peak and dispatchers on the hydro system seem to be holding back on the water letting the thermal generators and batteries meet demand. Last Tuesday, July 16th, saw batteries come close to setting a new record dispatch when they discharged 7,659 MW during the evening ramp period. Relative to prices elsewhere on the western grid, the CAISO continues to price under neighboring grids making exports from California an attractive alternative for the marginal megawatt. Wildfires continue to be a threat to the grid as a couple burn near major transmission lines. If a situation develops such that lines need to be de-energized for fire ops in the vicinity, sharp changes in prices can occur not only on CAISO grid but in natural gas as the state’s thermal fleet would have to respond.

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