Weekly Energy Industry Summary
Week of September 18, 2023
By The Numbers:
- NG '23 prompt-month NYMEX settled at $2.73/MMbtu, up $0.084/MMbtu on Monday, September 18.
- WTI '23 prompt-month crude oil closed at $91.48/bbl., up $0.71/bbl on Monday, September 18.
Natural Gas Fundamentals - Neutral
- NG '23 prompt-month NYMEX settled at $2.73/MMbtu, up $0.084 on Monday, September 18.
- A cool down in the midwest is driving down near-term demand for electric-power generation, but a warm up this week brings back some later season demand on that front with highs in the mid and upper 80s.
- Natural gas production month-to-date is 102 Bcf/d, down 0.2 Bcf per day from last month and up 4.8 Bcf/d year-over-year.
- LNG exports are 12.8 Bcf per day for the month of September, an increase of 0.8 Bcf per day year-over-year. This noted, a ramp up in LNG this week is underway with volumes breaching the 13 Bcf/d mark for the first time in more than 60 days.
- NG calendar 24' through 28' strips are -- $3.42, $3.94, $3.98, $3.93, and $3.82 respectively.
Crude Oil - Bullish
- Crude oil prices continue to drive upward.
- NYMEX WTI prompt month settled at $91.48/bbl., up $0.71/bbl., on Monday, September 18.
- Crude oil is up nearly 45% since the start of the second quarter.
- Near-term concerns regarding demand are giving way to the longer-term outlook where demand grows and supply may struggle to meet such.
- There is reportedly some short-covering going on that is lending support to the crude market as well.
- Several forecasters are now calling for $100/bbl., oil by years end.
- The momentum is up.
Economy - Neutral
- Rising oil prices are a thorn in the side of the Fed as it will likely have to remain hawkish on rates.
- The UAW is striking across all of the Big Three automakers with the Administration caught between support for unions and the need for the U.S. auto industry to be more competitive.
- Amid signs that the private economy is cooling, the public sector is adding workers, The Wall Street Journal reports.
- Despite rising oil prices, The Wall Street Journal posits that the Fed is likely to pause on rates in September.
- China's mineral clout and its dominance on the components for renewable energy is rising, while OPECs energy clout is waning, The Wall Street Journal reports.
Weather - Neutral
- Fall officially begins on Saturday.
- A warm up through this week brings some late season AC load to the Midwest.
- A drier sunnier east coast is on tap this week after a northerly hurricane dumped rain in the Mid-Atlantic and Northeast.
- It's still hot in Texas, but nowhere near where temperatures have been through the summer.
Weekly Natural Gas Report:
- The Energy Information Administration (EIA) reported an injection of 57 Bcf into underground storage for the week ending September 8, 2023. Inventories are 3,205 Bcf; gas inventories are 203 Bcf greater than the five-year average and 445 Bcf greater than the same time last year.
Weekly Power Report:
Mid-Atlantic Electric Summary
- The Mid-Atlantic Region’s forward power prices were relatively unchanged this past week for the entire price curve but did see a slight increase for the nearer terms. Decreased natural gas output along with higher LNG (Liquid Natural Gas) exports put some upward pressure on prices, despite the drop in temperature demand due to seasonal changes. Forward power prices for 2024/25 were about +1% higher this past week while the 2026/28 strip was unchanged. The entire 2024-2028 term, on average, is -15% lower than this time last year but still +65% higher than all-time lows for those contracts. Index prices continue their downward trend with lower year-over-year spot natural gas prices. In West Hub, the month-to-date settlement price for September thus far is $32.65/MWh or -49% lower than last year’s monthly average, while the month-to-date settlement price in the Eastern Hub is $32.48/MWh or -79% lower than last year’s monthly average for September.
- Power and natural gas prices in PJM are markedly lower this year compared to last year at this time. This past August, PJM on-peak forward power prices for September, October and November were trading at prices that were -66% lower than they were in August of 2022, when they traded an average of $117.41/MWh. The three-month forward natural gas price strip was also down considerably, from an average of $7.73/MMBtu a year ago to an average of $2.85/MMBtu in August 2023 trading. PJM West Hub on-peak power prices for September averaged $41.36/MWh, down -66% from $119.73/MWh last year. Forward power for October averaged $38.40/MWh, down -67% from $114.98/MWh last year, and the November contract averaged $41.61/MWh in August, down -65% from $117.50/ MWh a year ago, according to Platts. With natural gas representing over 46% of the power generation fuel mix during this time, the impact of that commodity on power prices has been significant. Source: Platts.
Great Lakes Electric Summary
- The Great Lakes Region forward power prices were relatively unchanged this past week for the entire price curve but did see a slight increase for the nearer terms. Decreased natural gas output along with higher LNG (Liquid Natural Gas) exports put some upward pressure on prices, despite the drop in temperature demand due to seasonal changes. Forward power prices for 2024/25 were about +1% higher on the week while the 2026/28 strip was unchanged. The entire 2024-2028 term, on average, is -13% lower than this time last year but still +61% higher than all-time lows for those contracts. Index prices continue their downward trend with lower year-over-year spot natural gas prices. In COMED, the month-to-date settlement price for September thus far is $27.19/MWh or -79% lower than last year’s monthly average for that month, while the month-to-date settlement price in the AdHub is currently $29.02/MWh or -63% lower than last year’s monthly average for September. In Michigan, the month-to-date settlement price thus far is $30.35/MWh or -62% lower than last year’s monthly average, while the month-to-date settlement price in Ameren is averaging $28.92/MWh or -63% lower than last year’s monthly average for September.
- EV Battery Facility Announced - Governor Pritzker announced a new lithium-ion battery manufacturing facility to open in Manteno next year owned by Chinese-based Gotion, a battery manufacturing and development company. The $2 billion project plans to create 2,600 jobs and begin production in 2024, producing battery cells and packs used in electric vehicles and large-scale energy storage systems. The state and local governments offered Gotion more than $536 million in incentives and tax incentives, according to the Pritzker Administration, and the company will also receive $125 million for capital funds from the governor’s discretionary “closing fund” for business incentives.
Northeast Energy Summary
- Eversource/Ørsted announced on August 29 that Revolution Wind I, the 700 MW project under contract with Rhode Island and Connecticut, will begin on-shore construction in a matter of weeks after receiving its Record of Decision (ROD) from the U.S. Department of the Interior's Bureau of Ocean Energy Management (BOEM). The developers also announced that they are on schedule to achieve commercial operation by 2025. The ROD represents the final step in the National Environmental Policy Act review process for the project’s Wind Construction and Operations Plan (COP), and Revolution Wind must still receive BOEM's final COP approval decision as required by its Renewable Energy Regulation, and other required Federal and state authorizations. BOEM’s final COP decision is scheduled for Fall 2023. The announcement came a month after Rhode Island’s main electric utility declined to pursue a contract with Revolution II, citing costs related to inflation and supply challenges.
- On September 12th, New York City Mayor Eric Adams’ Administration rolled out long-awaited proposed rules on how it will enforce a landmark 2019 law to cut building emissions, while allowing flexibility to owners who are out of compliance when caps go into effect next year. That mandate, known as Local Law 97, requires large buildings in New York City to cut their emissions starting in 2024 or face fines with stricter caps going into effect in 2030. The goal of the law is to cut New York City buildings’ emissions 40% by 2030 and 80% in 2050. The rules proposed by the Department of Buildings set penalties at the maximum amount allowed by the law - $268 for every excess ton of carbon dioxide emitted beyond the cap. However, building owners that are out of compliance with the 2024 caps can avoid fines if they show certain “good faith efforts” to comply. Those include such steps as demonstrating their work to curb emissions and providing a plan affirming they will comply with the 2024 limits no later than 2026. Buildings that receive the leeway would be prohibited from purchasing renewable energy credits (RECs) to help comply with the law. Officials said the impending cap is already working to bring buildings into compliance, with just 11% of properties covered by the law not currently in line with the 2024 limits, down from 20% in 2019. More work will be required to comply with the 2030 caps. Officials said some 15,000 buildings will need a total investment between $12 billion and $15 billion to meet the stricter emissions limits. A public hearing is set to take place on 10/24 when the administration will hear comments from the public. Once finalized, these rules will shape key features of the law as the first compliance period begins in 2024.
ERCOT Energy Summary
CAISO, Desert Southwest and Pacific Northwest Energy Summary
- September is often the hottest month of the year in coastal areas of California as the marine layer is typically weakest while Santa Ana winds push desert-like heat into the coastal cities. This does not look to be the case this year as a cool pattern has set in and may persist through the balance of month. Trends since the weekend drifted in the warmer direction across the PNW and Northern Rockies for next week, but the big picture forecast is one of shoulder season moderation. The LA Basin and Central Valley will see temperatures average below normal, meaning daytime highs in the 70s and 80s, for the balance of the week while the DSW cities will see several days peak out in double digits rather than triple. The pattern will then re-warm to more seasonal levels heading towards the end of the weekend while above normal temperatures will build back in across the North. Longer term, the pattern may deliver a period of storms along the West coast heading towards the end of the month and early October. But the heat can still deliver as Santa Ana season will still be in full swing. Interesting data point: since 2000, San Diego has seen its hottest day of the year occur in October seven times, second only to September (eight) and more than all three summer months combined (four).
- With little to no degree day accumulations across the state the combined PG&E and SoCalGas demand volumes will stay below 4 Bcf per day and will likely deliver the lowest demand weeks of the summer. Continued strong hydro generation averaging 3 GW across the day is about 1 GWa higher than this time last year and is pushing many thermal units to the sidelines. Both PG&E and SoCalGas continue to push molecules into storage, showing 153 and 88 Bcf in the tank, respectively, as of the latest reports. Cash prices will not be under weather driven pressure but could swing based on cuts to PG&E’s Redwood path which has capacity limited to 1.9 Bcf through the end of month and into October, and then again from October 17 – 29th when the path is slashed to only 1.6 Bcf for inspections. This is typically when ResCom demand starts to ramp up in the Bay Area. Since the beginning of the month SoCal Gas has put 5 Bcf into Aliso Canyon bringing the inventory up to 45 Bcf. As noted in prior updates, there is a shut in showing on the Maintenance Plan slated to begin on the 27th and run through Oct 13th. During that time there will be no activity at the Canyon. Note: the outage is still listed on the Maintenance Plan and has not yet moved to the formal schedule so there is a chance that it gets canceled or modified … but it has been on the board the entire summer. Shifting from molecules to electrons, we continue to see S to N congestion in play driven by low demand and high renewables production. This has pushed SP15 day ahead settles into the upper $20s while NP15 clears above $40 per MWh in recent days. Until the heat returns, or clouds cut into production, congestion will be in play to encourage solar output to find a home outside of the CAISO.
- Following the CPUC’s decision to increase the operating capacity of the Aliso Canyon facility from 41 to 68 Bcf on Aug 31st, the criticism was they left in place the Aliso Canyon Withdrawal Protocol (ACWP). The ACWP “limits the use of Aliso Canyon storage to days when certain conditions are met. The system must be under some strain and gas customers may reach the point where they are subject to financial penalties for not delivering sufficient gas before Aliso Canyon can be used.” Since this restricted SoCalGas to only using Aliso as an asset of last resort to shore up reliable operation, there were not many private generators or suppliers willing to inject gas into the newly created space because their line of sight to removing the gas was hazy. Seeing the error of their ways, the CPUC lifted the ACWP last Friday removing the handcuffs from the cavern's operation allowing SoCalGas or others to pull gas from the cavern as needed and not when a list of parameters are met. This will help SoCalGas better manage flows on their system and should result in lower price volatility, in turn, bleeding some of the fear premium out of prices for winter basis at SoCal border and city gate. In order for that to happen, however, injections need to push 23 Bcf into the facility before heating demand arrives which will keep basis for Oct and Nov well supported, especially in light of the maintenance outage noted above which will set the system back 2+ plus weeks of injection opportunity.
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