Energy Market Update-March 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:
A warm up for a majority of the country has slowed the withdrawals from natural gas storage over the last couple of weeks. The expectations for end of heating season storage level have increased, which helped to maintain low market prices. Looking forward, shale gas production may be adequate to refill storage before next winter, but is off-set by the ever increasing demand for LNG and Mexico pipeline exports.
- Short term; 3 to 4 week forecasts shows a warming for the south stretching to New England. The absence of extreme cold in the near term pricing, will be bearish on short term market pricing. (outlook map on right)
Bullish: (higher prices)
- Natural gas storage levels will be well below the 5 year average by spring. Production levels are high, but may need to increase if we encounter a warmer than average summer. If prices remain at the current low market, storage injections would be weak due to gas demand versus coal for electric generation.
Natural Gas Storage Update:
The storage report for week ending 2/23 shows a withdrawal of 78 Billion Cubic Feet (Bcf). This puts levels at 18.1% below the 5-year average by 372 Bcf, and 680 Bcf below last year at this time. Current percentage of total capacity is now at 38.5% with 6 weeks of heating season remaining.
The intensely cold bomb cyclone weather event in early January resulted in record levels of U.S. natural gas demand and elevated wholesale natural gas and power prices around the country. A constrained natural gas pipeline network led to a significant increase in oil-fired and dual-fuel generation in New England and New York and, to a lesser extent, in the Mid-Atlantic.
During the cold weather spanning the end of December to early January, oil use jumped from almost nothing to a high of 36% of the daily generation mix on the ISO New England (ISO-NE) system and 9% on the PJM system covering an extended Mid-Atlantic region. On New York ISO’s (NYISO) system, the output of dual-fuel generators, most of which are natural gas generators that can switch to oil, and other fossil fuel generators rose significantly. Coal generation also increased substantially in PJM.
Day-ahead daily average peak-period power prices for January 5, 2018, one of the coldest days of the weather event, reached $247 per megawatt hour (MWh) in New England and New York and $262/MWh in the Mid-Atlantic, compared with $30-$50/MWh average prices in the preceding six weeks. These prices were far lower than the $440-$680/MWh peaks seen during the polar vortex event in January 2014 despite natural gas prices that spiked higher this year than in 2014.
Day-ahead natural gas spot prices for January 5, 2018, reached $83.75 per million British thermal units (MMBtu) in New England, $140.25/MMBtu in New York, and $96.07/MMBtu in the Mid-Atlantic, compared with $3-$5/MMBtu average prices in the preceding six weeks. These prices exceeded January 2014 polar vortex prices by about $4-20/MMBtu.
Power markets in the Northeast and Mid-Atlantic have become more reliant on natural gas over the past several years following the retirement of electricity generators using fuels other than natural gas. However, the relative moderation in power price spikes during this year’s cold snap—despite higher natural gas prices—reflects a host of market rule changes and winter preparedness actions taken by the region’s grid operators to improve winter reliability.
Short contract ranks good as we near the shoulder months of spring, while long term contracts continues at a good to excellent.
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.