Energy Market Update-June 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.
The injection of natural gas into storage for next winter is now well underway, and is near average volumes for this time of year. However, above normal summer temperatures, along with increased demand from the power generators, may erode the amount of available gas for storage.
June’s Market price settled on May 29th at $2.875/MMBtu, moving up only 5.4¢ from last month.
Current Market Movers:
Bearish: (lower prices)
- Even with the 3 month outlook showing warm conditions, June is starting out with cooler temperatures for the eastern third of the country in the 8-14 day forecast. This is short term, but will help to reduce demand for cooling as we enter into the start of summer. The problem is investors are focusing on the summer demand, not so much the short term.
Bullish: (higher prices)
- Natural gas storage levels are starting the injection season below the 5 year average. Investors are watching closely for how fast storage will replenish. Any short injections will be bullish throughout the summer and especially during early fall.
Price Stabilizer: (controls price range)
- Natural gas prices can affect the consumption balance of gas versus coal for electric generation. This is particularly important during summer. Natural gas is currently about $0.0017 or .17¢ less expensive than Eastern Coal to generate a Kilowatt Hour of electric. If gas prices push over $3 to $3.10, we would see an increase use of coal in the total fuel mix under PJM, thus reducing the gas demand for electric generation.
Natural Gas Storage Update:
The storage report for week ending 5/25 shows an injection of 96 Billion Cubic Feet (Bcf). This puts levels at 22.5% below the 5-year average by 500 Bcf, and 788 Bcf below last year at this time. Current percentage of total capacity is now at 39.4%. Injections are considered average in volume.
Fossil fuel consumption in the electric power sector declined to 22.5 quadrillion British thermal units (quads) in 2017, the lowest level since 1994. The declining trend in fossil fuel consumption by the power sector has been driven by a decrease in the use of coal and petroleum with a slightly offsetting increase in the use of natural gas. Changes in the fuel mix and improvements in electricity generating technology have also led the power sector to produce electricity while consuming fewer fossil fuels.
In 2017, coal consumption by the electric power sector reached its lowest level since 1982, and petroleum consumption in the power sector was the lowest on record, based on data since 1949. Recent natural gas consumption in the power sector has generally been increasing, but 2017 consumption was slightly lower than the record-high 2016 level.
In energy-equivalent terms, more coal was consumed in the power sector than natural gas in 2017, at 12.7 quads and 9.5 quads, respectively. However, in terms of electricity generation, natural gas-fired power plants in the electric power sector produced more electricity than coal-fired plants, at 31% and 30% of the U.S. total, respectively, in 2017. Natural gas-fired units tend to be more energy efficient, requiring less energy content to produce a unit of electricity.
As recently as 2000, natural gas-fired power plants were on average about as efficient as coal-fired plants. Since then, new natural gas-fired power plants have tended to use combined-cycle generators, which are more efficient because the waste heat from the gas turbine is routed to a nearby steam turbine that generates additional power.
Combined-cycle units now make up most of the natural gas-fired electricity generation capacity. By the end of 2018, natural gas combined-cycle units may surpass conventional coal-fired power plants to become the most prevalent technology for generating electricity in the United States.
As the natural gas-fired generation fleet has grown and become more efficient, the generation-weighted average efficiency of fossil fuel-fired electricity generation has improved. In 1994, fossil fuel power plants required 10,400 British thermal units (Btu) of primary energy to produce each kilowatt-hour (kWh); by 2017 that rate had fallen to 9,400 Btu/kWh.These changes in energy consumption and efficiency have also affected carbon dioxide (CO2) emissions from the electric power sector, which in 2017 were the lowest since 1987. Because coal combustion is much more carbon intensive than natural gas combustion, CO2 emissions from coal were more than double those from natural gas in 2017, even though natural gas provided more electricity generation.More information on U.S. energy consumption and CO2 emissions across sectors is available in EIA’s Monthly Energy Review.
Short and long term electric contracts rank fair. Even though the future years continue to trade in backwardation, a premium is added to compensate for market fluctuations. Natural Gas long term contracts remain good.
The market opportunity is a ranking of how we perceive timing of contract purchases for natural gas or electric.
Information provided by the Energy Division of Edge Insights, Inc.