Energy Market Update-February 2018
Edge Insights energy experts are constantly monitoring energy market conditions in order to help ensure the best possible pricing and contract terms for our clients. The following report is a snap shot of current conditions intended to help our clients stay informed of market dynamics.
Natural Gas Market Overview:
An all-time record draw from gas storage occurred in January, pulling out 359 Bcf for week ending 1/5/18. This caused levels to breach the low 5 year average range, and the market responded upward as expected. Recent above average temperature forecasts have negated this upswing (see chart below), bringing the near trading month back under $3/Dth.
U.S. Producing wells are up 236 over last year at this time, with the addition of 193 oil, and 43 gas. This capacity increase is off-set by increasing demand for exports that are expected to be 18 to 22% higher than last year. Gas market pricing continues to be driven by temperature demands, usually until about July, when the end of summer storage levels are more in focus.
February’s Market price, settled on Jan 29th, was $3.631/MMBtu, an 89.3¢ increase from January.
Current Market Movers:
- Short term; 3 to 4 week forecasts is fairly neutral and typical for this time of year. The absence of extreme cold in the near term pricing, will be bearish on market pricing. Heating demand is across the northern Great Lakes region through New England, with warmer conditions across the south and west. (outlook map on right)
- Gas production has recovered from the effects of extreme cold temperatures early in January with an expected increase from 7% to near 10% in February compared to last year at this time.
- The natural gas end of heating season forecast storage levels have increased from 800 Bcf mid-January to over 1200 Bcf.
Bullish: (higher prices)
- Even with expected bearish production increases, there is a potential for February’s cold to close wells in the Marcellus Shale area.
- Exports of LNG and compressed gas to Mexico will continue to add pressure to market pricing.
- The outlook from NOAA weather for June-August shows warm summer conditions for all but the north central U.S.
Natural Gas Storage Update:
The storage report for week ending 1/26 shows a withdrawal of 99 Billion Cubic Feet (Bcf). This puts levels at 16.2% below the 5-year average by 425 Bcf, and 92 Bcf below last year at this time. Current percentage of total capacity is now at 50.2% with 10 weeks of heating season remaining.
NITS INCREASE EFFICTIVE JANUARY 2018
NITS (Transmission) rates are regulated by FERC (Federal Energy Regulatory Committee) and apply to retail electric suppliers. NITS makes up the third largest piece of an electric supply bill, following energy and then capacity. Transmission charges may be part of a ‘full fixed’ price, and not seen on a bill, or in other cases they may not be locked in at a known rate, and will be billed as a separate line item.
These NITS rates are based on investments in the transmission system by the transmission owner and vary by utility. The rates are calculated by each utility issuing an “annual transmission revenue requirement” which is then divided up among the number of megawatts (MW) under their control, annually. For example – JCPL has an annual requirement of $135,000,000 for transmission services and a rate of $23,597 per MW.
Rate increases are a reality across PJM but vary greatly by utility. The largest potential impacts on a supply bill are in Penn Power (as much as 16%) and PSE&G (could be as high as 10%). In other areas such as PECO, JCP&L, and PEPCO, the increases are expected to be minor, perhaps 1%. Increases will also vary by customer and will depend on a customer’s load profile and on any changes which may have occurred, year versus year, in transmission ‘tags’, per account. The increases may or may not be already covered by a customer’s supplier contract, and even if not covered, a supplier may elect not to pass through these increases. If you have any questions, please call Ken Gill at 610-787-7106.
Other Interesting Information:
Wind expected to surpass hydro as the largest renewable electric energy source
Ranking for short contracts has improved from last month, however long term contacts are still the better option.
Timing purchases is important due to high market volatility as we continue through the high heat demand months.
The market opportunity is a ranking of how we perceive timing of contract purchases or hedging natural gas or electric.
Information provided by the Energy Division of Edge Insights, Inc.