Energy Market Update-October 2017
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:
Since June of this year the Nymex market has continued to trade in a range from $2.70 to $3.10. The expected higher summer prices did not materialize primarily due to cooler temperatures. Hurricane activity did not heavily impact production, and power outages reduced demand for gas used to generate electric.
Natural Gas Storage Update:
The storage report for week ending 9/29 shows the addition of 42 Billion Cubic Feet (Bcf). This is -0.2% below the 5-year average by 8 Bcf, and 161 Bcf below last year at this time. Current storage levels are now at 80.2% of total capacity.
Current Market Movers:
- Short term; we are in the shoulder season, with reduced cooling and before the heating season ramps up. A cool down in the high population areas of the country will keep prices down.
- Longer term; natural gas consumption is not expected to be above last year, while production continues to increase.
Bullish: (higher prices)
- Short term; we see some remaining cooling demand in the northeast in the one month outlook. (right)
- Longer term; the end-of-season gas storage levels expected to be below the 5-year average. Also, exports of Liquid and compressed natural gas for October expected to be 60% higher than last year.
As nuclear power plant retirements increase, natural gas-fired generation capacity grows
In the past seven years, six nuclear power plants announced their intentions to retire early. The most recent announcement came in May from Exelon’s Three Mile Island power plant in Pennsylvania. These six plants have a current operational capacity of about 7.2 gigawatts (GW). In addition to these plants, construction of South Carolina Electric and Gas Company’s 2.2 GW VC Summer power plant was halted in July. While nuclear capacity is expected to decrease in the next 8 years by 7.2 GW, announced builds at natural gas-fired power plants will offset some of the lost capacity.
As of July 2017, natural gas-fired generation capacity was slightly more than 40% of total U.S. operating capacity, with the net summer capacity for natural gas-fired generation at about 453 GW. About 54% of the natural-gas fired capacity comes from natural gas combined-cycle (NGCC) plants. Between 2013 and 2017, 25 GW of natural gas-fired generation capacity retired; many of these generators were steam turbines and most were older generators with an initial operation year between 1950 and 1980. In comparison, as of July 2017, nuclear generation net summer capacity totaled 99 GW. Although no nuclear plant retirements occurred between 2002 and 2012, from 2013 to 2017, five plants, with a combined capacity of 4.7 GW, were retired. From 2013 to 2016, average net generation for electric power from nuclear energy remained nearly flat, and the generation from natural gas has grown by about 6% per year.
Through 2027, planned natural gas generation capacity additions total 62 GW for 130 projects. More than three-quarters of the planned capacity are from NGCC plant builds. The two NGCC projects with the largest planned capacity are Citrus County Combined Cycle Plant (1.6 GW) and Okeechobee Clean Energy Center (1.7 GW), both located in Florida. The capital cost estimate for a nuclear power plant is more than six times greater than that of a NGCC plant on a per kilowatt basis. One new nuclear plant is planned for construction in the next few years, the Vogtle project in Georgia, with a total capacity of 2.2 GW.
Gas prices have been stable for now, but will drive up electric generation costs if gas prices rise going into winter.
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.