Energy Market Update
Summer 2022 started off with a sizzle, bringing multiple 90-degree days and an abundance of sunshine. The scorching temperatures mean the air-conditioning is cranked up and energy usage is on the rise. Electric and natural gas prices are higher than this time last year, so it’s important to prepare and protect against market volatility.
Contact your CES representative, Emilie Snider, today to be sure your business is ready to beat the heat. esnider@palmerenergy.com or 419 491-1017
Summer 2022 started off with a sizzle, bringing multiple 90-degree days and an abundance of sunshine. The scorching temperatures mean the air-conditioning is cranked up and energy usage is on the rise. Electric and natural gas prices are higher than this time last year, so it’s important to prepare and protect against market volatility.
Contact your CES representative, Emilie Snider, today to be sure your business is ready to beat the heat. esnider@palmerenergy.com or 419 491-1017
Natural Gas:
Natural gas futures prices traded to 14-year high prices in June, levels not seen since the economic downturn in 2008 and Hurricane Katrina in 2005. Since early June, the script has flipped, however.
An explosion at the Freeport LNG (liquefied natural gas) terminal in Texas on June 8th sent shockwaves through the NYMEX natural gas futures market. The original restoration timeline to operations at the terminal was pegged at three weeks. This was then lengthened to 3-4 months and is now currently unknown. The Pipeline and Hazardous Materials Safety Administration conducted an investigation and deemed the gas terminal unsafe. A best-case scenario for a return to full operations seems to be late 2022.
Why is this a big deal you might ask? Freeport LNG exports roughly 2 billion cubic feet (BCF) per day in LNG supplies, meaning somewhere in the neighborhood of 250-350 BCF of previously anticipated gas export volumes will now be reverted into underground domestic gas storage ahead of the coming winter heating season. NYMEX gas futures have since retreated from their June 8th 14-year high price of $9.66 per MMBtu to a low of $5.33 per MMBtu as of July 5th, experiencing major daily swings on a regular basis.
The other notable development aiding in drawing prices lower is the threat of further export demand destruction from a potentially busy hurricane season. Following a 2021 Atlantic hurricane season that resulted in upwards of $78.5 billion in U.S. damage, the National Oceanic and Atmospheric Association (NOAA) is predicting another above-average hurricane season in 2022. According to the NOAA, there is a 65% chance for an above-average hurricane season (14-21 named storms), a 25% chance for a normal season, and a 10% chance for a below-average season. Of the storm total, 6-10 are projected to turn into hurricanes, of which 3-6 are currently projected to form into major hurricanes (winds > 111 mph). The typical hurricane season spans June 1 – November 30. While calm thus far, things can certainly change in a hurry as we’ve seen before.
Electric:
The electric market has continued the unsettled trend with wholesale pricing rising across the country in the first half of 2022. There are many factors driving electric pricing, with the largest being the cost and availability of generation, as well as weather.
Natural gas-fired generation makes up over 35% of the generation capacity mix in the country, and this is expected to remain relatively steady in the coming years, despite more recent price increases. Coal-fired generation briefly rose due to higher natural gas costs, however, with the continued coal-fired generation retirements, the use of coal for power generation is expected to decline. The Energy Information Administration (EIA) expects the largest growth in generation capacity from the renewables sector, despite large delays due to import tariff regulations, manufacturing and supply chain issues, and elongated wait times with interconnection studies and project approvals.
On a more local scale, PJM recently held the initial capacity auction for the June 1, 2023 – May 31, 2024 planning year, which came in at $34.20/MW-day for all investor-owned utilities in Ohio. As you may recall, capacity costs are embedded in the generation portion of your bill and are non-by-passable for all customers. Capacity costs pertain to ensuring there is enough electric supply to meet demand at any given time. This cost represents a decrease from the current planning year, which is at approximately $50/MW-day for most Ohioans (~$60/MW-day for Duke Energy Ohio users).
On-peak wholesale pricing at the AEP-Dayton Hub has increased 113% for the August-December 2022 timeframe between October 29, 2021 and July 7, 2022. 2023 on-peak pricing increased 63% over this same timeframe, and 2024 on-peak pricing increased 40%. Wholesale pricing continues to display a backwardation trend, where pricing is lower further into the future. If you have a contract expiring in the coming 12 months, now is the time to start evaluating opportunities to avoid near-term volatility.
Natural gas futures prices traded to 14-year high prices in June, levels not seen since the economic downturn in 2008 and Hurricane Katrina in 2005. Since early June, the script has flipped, however.
An explosion at the Freeport LNG (liquefied natural gas) terminal in Texas on June 8th sent shockwaves through the NYMEX natural gas futures market. The original restoration timeline to operations at the terminal was pegged at three weeks. This was then lengthened to 3-4 months and is now currently unknown. The Pipeline and Hazardous Materials Safety Administration conducted an investigation and deemed the gas terminal unsafe. A best-case scenario for a return to full operations seems to be late 2022.
Why is this a big deal you might ask? Freeport LNG exports roughly 2 billion cubic feet (BCF) per day in LNG supplies, meaning somewhere in the neighborhood of 250-350 BCF of previously anticipated gas export volumes will now be reverted into underground domestic gas storage ahead of the coming winter heating season. NYMEX gas futures have since retreated from their June 8th 14-year high price of $9.66 per MMBtu to a low of $5.33 per MMBtu as of July 5th, experiencing major daily swings on a regular basis.
The other notable development aiding in drawing prices lower is the threat of further export demand destruction from a potentially busy hurricane season. Following a 2021 Atlantic hurricane season that resulted in upwards of $78.5 billion in U.S. damage, the National Oceanic and Atmospheric Association (NOAA) is predicting another above-average hurricane season in 2022. According to the NOAA, there is a 65% chance for an above-average hurricane season (14-21 named storms), a 25% chance for a normal season, and a 10% chance for a below-average season. Of the storm total, 6-10 are projected to turn into hurricanes, of which 3-6 are currently projected to form into major hurricanes (winds > 111 mph). The typical hurricane season spans June 1 – November 30. While calm thus far, things can certainly change in a hurry as we’ve seen before.
Electric:
The electric market has continued the unsettled trend with wholesale pricing rising across the country in the first half of 2022. There are many factors driving electric pricing, with the largest being the cost and availability of generation, as well as weather.
Natural gas-fired generation makes up over 35% of the generation capacity mix in the country, and this is expected to remain relatively steady in the coming years, despite more recent price increases. Coal-fired generation briefly rose due to higher natural gas costs, however, with the continued coal-fired generation retirements, the use of coal for power generation is expected to decline. The Energy Information Administration (EIA) expects the largest growth in generation capacity from the renewables sector, despite large delays due to import tariff regulations, manufacturing and supply chain issues, and elongated wait times with interconnection studies and project approvals.
On a more local scale, PJM recently held the initial capacity auction for the June 1, 2023 – May 31, 2024 planning year, which came in at $34.20/MW-day for all investor-owned utilities in Ohio. As you may recall, capacity costs are embedded in the generation portion of your bill and are non-by-passable for all customers. Capacity costs pertain to ensuring there is enough electric supply to meet demand at any given time. This cost represents a decrease from the current planning year, which is at approximately $50/MW-day for most Ohioans (~$60/MW-day for Duke Energy Ohio users).
On-peak wholesale pricing at the AEP-Dayton Hub has increased 113% for the August-December 2022 timeframe between October 29, 2021 and July 7, 2022. 2023 on-peak pricing increased 63% over this same timeframe, and 2024 on-peak pricing increased 40%. Wholesale pricing continues to display a backwardation trend, where pricing is lower further into the future. If you have a contract expiring in the coming 12 months, now is the time to start evaluating opportunities to avoid near-term volatility.
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