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Weekly Energy Industry Summary

Commodity Fundamentals

Week of October 21, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $2.31/MMbtu, up $.06/MMbtu, on Monday, October 21. 
  • WTI '24 prompt-month crude oil settled at $70.56/bbl., up $1.34/bbl., on Monday, October 21.

Natural Gas Fundamentals - Neutral/Bearish

  • Prompt-month NYMEX natural gas futures settled at $2.31 per MMbtu, up $.06 per MMbtu on Monday, October 21.
  • Natural gas production, month-to-date (October), has averaged 101.8 Bcf per day, versus 102.8 Bcf per day for the same period last year.
  • Electric power generation demand for gas, month-to-date (October), has averaged 34.7 Bcf per day versus 33.3 Bcf per day for the same period last year.
  • LNG exports month-to-date (October) averaged 13 Bcf per day versus 13.5 Bcf per day for the same period last year.
  • Natural gas exports to Mexico, month-to-date (October), averaged 6.3 Bcf per day versus 6.4 Bcf per day for the same period last year.
  • Natural gas strip prices, 2025-2029 are; $3.09, $3.54, $3.62, $3.57, and $3.49 per MMbtu respectively.

Crude Oil - Bullish

  • The events and geopolitical tensions remain in this market providing the potential for upside in crude oil. For this reason, the headline on the market condition of crude oil remains "Bullish" until further notice.
  • Reports that Israel has told The White House that it will not attack Iranian oil assets have moved crude oil pricing down.
  • Crude oil settled at $70.56 per barrel, down $1.34 per barrel on Monday, October 21.
  • Economic news from China continues to be bearish of crude oil demand.
  • Iranian exports of crude oil at this time are 1.7 million barrels per day.
  • OPEC has approximately 4 million barrels per day of spare production capacity.
  • The Israeli response to Iran's ballistic missile attack of October 1 is still pending.

Economy - Neutral

  • The University of Michigan's index of consumer sentiment declined in mid-October to 68.9 from 71.0 a month earlier, The Wall Street Journal reported.
  • Consumers continue to express frustration over high prices, despite inflation expectations easing since this time last year, The Wall Street Journal reports.
  • U.S. hiring accelerated in September with non-farm payrolls increasing by 254,000.
  • Unemployment in the IT sector rose to 6% as streamlining and cost cutting leave some workers in a tough labor market.
  • U.S. consumers drive retail growth as spending at restaurants and clothing stores stays robust, The Wall Street Journal reports.
  • The U.S. federal government spent $1.8 trillion more than it took in fiscal 2024.
  • Interest expense to service the national debt for 2024 totaled $1.16 trillion, the highest ever.
  • The national debt swelled to $35.7 trillion in the latest fiscal year.

Weather - Neutral

  • An overall warmer-than-normal pattern over the eastern two thirds of the nation is the feature of the pattern.
  • The West is generally normal to below normal.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending October 11, 2024 are 3,705 Bcf; an injection of 76 Bcf was reported for the week ending October 11, 2024.
  • Gas inventories are 163 Bcf greater than the five-year average and 107 Bcf greater than the same time last year. 
Values reflect week ending Oct. 18, 2024
Prices reflect week ending Oct. 18, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

  • The Mid-Atlantic Region’s forward power prices were higher overall on the week with more price support for longer-term prices and more resistance for shorter-term prices.  Mild shoulder month demand and stable natural gas supply are helping to put downward pressure on power prices in the near-term while long-term resource adequacy concerns seem to be providing price support further-out on the price curve for electricity.  There was a heating demand gain over the weekend as the weather models are struggling with variability in the pattern beyond about a week out in time. We are still looking at a warmer than normal pattern over the eastern two-thirds of the nation, but quick cold fronts are adding variability. The next cool down is focused over the coming weekend before warming back up toward the end of October.  The 11-15 day shows a warmer than normal East with variability to the cooler side in the West.  Future power prices were -1% lower over the past week in the Mid-Atlantic, with the near-term 2025 strip being -2% lower, while the 2028-2029 strips were 3% higher.  Month-to-date day-ahead index prices in West Hub for October are averaging $36.60/MWh, which is 8% higher than September’s settlement price average and -1% lower than last year’s October average.
  • PJM’s Capacity Market – Proposed Auction Delays and Market Design Changes - On 10/15, PJM submitted Docket No. ER25-118, a request for waiver to delay the Reliability Pricing Model (RPM) auctions by six months for Delivery Years 2026/27 through 2029/30.  PJM’s filing follows a complaint filed by a coalition of stakeholders (Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project, and Union of Concerned Scientists) requesting a delay of the 2026/27 auction and the inclusion of the Reliability Must-Run units, Brandon Shores and Wagner, in the auction.  PJM notes in its filing that other capacity market rules may need adjustments to produce fair market results and that PJM will be discussing those adjustments with stakeholders in anticipation of proposing rule changes prior to the next auction.

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices were higher overall on the week with more price support for longer-term prices and more resistance for shorter-term prices.  Mild shoulder month demand and stable natural gas supply are helping to put downward pressure on power prices in the near-term while long-term resource adequacy concerns seem to be providing price support further-out on the price curve for electricity.  There was a heating demand gain over the weekend as the weather models are struggling with variability in the pattern beyond about a week out in time. We are still looking at a warmer than normal pattern over the eastern two-thirds of the nation, but quick cold fronts are adding variability. The next cool down is focused over the coming weekend before warming back up toward the end of October.  The 11-15 day shows a warmer than normal East with variability to the cooler side in the West.  Future power prices were -1% lower over the past week in the GLR region, with the near-term 2025 strip being -2% lower, while the 2028-2029 strips were 4% higher.  Month-to-date day-ahead index prices in Michigan for October are averaging $29.63/MWh, which is 1% higher than September’s settlement price average but -9% lower than last year’s October average, while Ameren’s month-to-date day-ahead index prices for October are averaging $27.30/MWh or -2% lower than September’s settlement price average and -14% lower than last year’s October average.  In ComEd those prices were $27.18/MWh or 1% higher over the past month and -15% lower over the past year, while at AdHub the average price is $34.60/MWh or 15% higher than last month and -1% lower than the last year at this time.
  • PJM’s Capacity Market – Proposed Auction Delays and Market Design Changes - On 10/15, PJM submitted Docket No. ER25-118, a request for waiver to delay the Reliability Pricing Model (RPM) auctions by six months for Delivery Years 2026/27 through 2029/30.  PJM’s filing follows a complaint filed by a coalition of stakeholders (Sierra Club, Natural Resources Defense Council, Public Citizen, Sustainable FERC Project, and Union of Concerned Scientists) requesting a delay of the 2026/27 auction and the inclusion of the Reliability Must-Run units, Brandon Shores and Wagner, in the auction.  PJM notes in its filing that other capacity market rules may need adjustments to produce fair market results and that PJM will be discussing those adjustments with stakeholders in anticipation of proposing rule changes prior to the next auction.

Northeast Energy Summary

  • On October 11, the Massachusetts Department of Energy Resources (DOER) released emergency regulations to alter the Clean Peak Standard (CPS).  The CPS requires suppliers to purchase a certain percentage of their electricity from clean generation sources which actually generate during peak hours.  The emergency regulations change the schedule for the Alternative Compliance Payment (ACP).  Currently, ACPs are set at $45 per MWh and decrease every year through 2050.  The emergency regulations set the ACP to $45 in 2025, $65 from 2026 through 2032, and $45 through the remainder of the program ending in 2050.  Additionally, the emergency regulations removed the initial 30% target procurement target for electric distribution companies and suppliers, reduces the ability to bank Clean Peak Energy Credits from three years to two years, and alters the Summer Seasonal Peak Period to reflect the current peak times.  The emergency rules are effective immediately and are valid for three months, during which time DOER will undergo a permanent rulemaking process.  DOER explained that these changes were necessary to foster renewable projects development in the state. DOER also announced that their emergency regulations from July 19 were made permanent with no changes after evaluating feedback from the public comment period.  These emergency regulations altered the minimum obligations under the CPS by reducing the obligations for 2024 through 2028 but increasing the obligations 2029 through the end of the program in 2050.  
  • On October 9, the Rhode Island Public Utilities Commission (RIPUC) issued a notice to solicit comments about retail contracts that were executed following the 2022 enactment of an amendment to the Renewable Energy Standard.  The amendment, which increased the Renewable Energy Standard to 100% by 2033, was enacted on 6/27/22, but included an exemption for existing retail contracts entered into prior to 7/1/22.  RIPUC is now seeking input on whether allowing exemptions for contracts executed between the enactment and the effective date are consistent with the intent of the exemption provision and if not, whether the RIPUC has the authority to deny those exemptions. 
  • Recently, New York Governor Hochul announced more than $24 million in awarded contracts for 26 innovation projects in multiple clean energy sectors.  The awarded projects join the New York State Energy and Research Development Authority’s (NYSERDA) growing portfolio of more than 200 innovation projects to advance long duration energy storage, clean hydrogen production and storage, grid modernization, geothermal, and building electrification and efficiency.  The projects were selected by NYSERDA through its Innovation and Research program (I&R), which is dedicated to accelerating the development of cutting-edge clean energy technologies in support of the state's transition to a lean energy economy.  The program aims to deploy approximately $1.2 billion over 15 years as direct research investments and commercialization support.  To date, more than $200 million in finance capital has enabled commercialization of more than 450 clean energy projects as a result of NYSERDA’s technology and business development investments.  Key projects awarded in this round of funding include: $2.4 million for supply chain and workforce investments for building, installing, and operating a battery energy storage system using zinc-manganese dioxide batteries, and developing electrolyte additives for zinc air batteries; $8.1 million for hydrogen and clean fuels to decarbonize industrial process heat, facilitate the integration of clean hydrogen production with renewable energy, and demonstrate hydrogen-based generation systems for grid support services; $7.3 million in awards focused on enhanced grid management and integration with improved distributed energy resource coordination; and $1.8 million focused on developing advanced efficient heating and cooling systems, intelligent load management, renewable energy integration, innovative insulation products, and occupant-centric controls to reduce energy costs, improve building efficiency, and support the transition to sustainable energy practices.

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

  • Second summer in the West continues, the weather pattern will begin to rewarm this week most notably across the Southwest along with portions of the interior West and Rockies. Strong ridging looks to build bringing a return to unseasonably hot conditions. Highs are forecast to rise to the mid to upper-90s in Phoenix from today through early next week, challenging records yet again, while Vegas tops out in the mid to upper 80s. In California, the offshore flow that kicked the LA Basin up into the mid-80s over the weekend is expected to continue and carry through to this weekend, possibly making topping out close to 90o this weekend. The incredibly mild conditions locked in over the West are also appearing nationally, as several warm records are being challenged, including Minneapolis, where the low thus far is 65° vs. the record 62°, and Wednesday in Dallas, where the forecast high of 91° would tie the daily record.
  • The above weather forecast is precisely why we’ve seen gas prices on the Nymex and particularly in California hit a tipping point towards bearish pricing. The weekend cash settles shifted down substantially to leave both city gates at their lowest prices in October. The three-day package at PG&E was $2.60 and SoCal was a mere $1.62 per MMBtu. The prices stem from the lack of demand within the state and a lack of shelf space to really put any incoming gas as most of the storage caverns are back to levels seen at the end of September, despite ongoing maintenance limiting pipeline transports. Add in that a strong renewable profile from late season winds and robust solar production are taking overall power burns out at the knees doesn’t help. The setup is such that the coming weeks will be a paradoxical bonanza for storage operators in the west. The fundamentals will drive cash prices in SoCal and the Desert SW to print well below those of the upcoming winter months which would ordinarily incentivize stuffing molecules into storage in hopes of capturing those higher winter prices; but there won’t be the space in the caverns to store the gas. Advantage: energy buyer. At least until cold weather arrives to goose demand, and if they can avoid the High operational flow orders (OFOs) that are likely to occur in the interim.
  • CAISO’s market grew slightly tighter yesterday looking at the day-ahead auction settles. We saw the spread between NP15 and SP15 drop by a couple bucks as strong temperatures lifted demand in the LA Basin enough to absorb some of the wealth of solar pouring out the farms in the deserts. Transmission still binds as the energy output overwhelms the ability of the wires to move the electrons out of the region causing curtailments to kick up and negative price action to reappear in the real time, as it did over the last few days in SP15.
  • Phillips 66 is closing two LA based refineries after more than a century of operation. Phillips 66 announced last Weds that late next yr it is closing the twin refinery complex that produces about 8% of the state’s gasoline. The refinery complex consists of two facilities five miles apart in Wilmington and Carson, linked by pipeline, about 15 miles from LAX. The Wilmington facility was built in 1919 and the Carson refinery was built four yrs later, with both operating under multiple owners since initial operation. The closure will leave the state with eight major refineries — three in the Bay Area and five in SoCal, operated by Chevron, Valero and others — as well as several smaller ones. Factors that played into the decision were reported as an “onerous” regulatory environment that increases costs, lowers demand for gas, and a dwindling supply of California crude oil, forcing the refinery to rely more on expensive shipments from Alaska and foreign countries. The closure is likely to increase California's already high prices at the gas pump, given that much of the replacement gasoline will be shipped in by ocean vessel. The announcement comes in the same week that the governor signed a new law that allows the state to require oil refiners to maintain a minimum inventory of fuel to avoid supply shortages that create spikes in gasoline prices. During the press conference, the Governor mentioned that there has been “no increase in taxes,” which, while technically true, the appointed California Air Resources Board (CARB) is poised to approve a proposal for its Low Carbon Fuel Standard (LCFS) that is set to have the opposite effect of what the new law intends to accomplish. Pressed by the press as to why CARB has provided no current update on the per-gallon retail price increase the new LCFS regulation will cause, the Governor did not really provide an answer. CARB had earlier pegged the price increase at 47 cents per gallon, effective next year. Some state authorities have surmised that the new law will raise prices in a state already paying the highest in the nation. Coincidence?

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