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Note: We will not be sending the Energy Market Update the week of September 2, 2024, due to the holiday.

Weekly Energy Industry Summary

Commodity Fundamentals

Week of August 26, 2024

By The Numbers:

  • NG '24 prompt-month NYMEX settled at $2.02/MMbtu, down $.03/MMbtu, on Monday, August 26. 
  • WTI '24 prompt-month crude oil settled at $74.83/bbl., up $1.82/bbl., on Monday, August 26.

Natural Gas Fundamentals - Neutral/Bearish

  • Prompt-month NYMEX natural gas futures settled at $2.02 per MMbtu, down $.03 per MMbtu.
  • Natural gas production, month-to-date, has averaged 101.6 Bcf per down, versus 102.7 Bcf per day for the same period last year.
  • A heat wave in the Midwest peaks this week and moves to the East Coast. Next week, temperatures in the Midwest and East cool down, but will be above normal seasonally.
  • LNG exports averaged 12.9 Bcf per day month-to-date versus 12.1 Bcf per day for the same period last year.
  • Natural gas demand for electric-power generation averaged 46.9 Bcf per day month-to-date versus 47.4 Bcf per day for the same period last year.
  • NYMEX strip prices, 2025-2029 are: $3.24, $3.62, $3.69, $3.63 and $3.58 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.
  • Reuters reports that Libyan crude production may be halted pursuant to a "flare up in tensions over leadership of the country's central bank."  Libyan production is 1.2 million barrels per day. The potential shut down of Libyan production gave some support to crude oil pricing overnight.
  • Chinese oil demand is soft, European demand is soft, U.S. demand is steady.
  • Russia reports a Ukrainian drone attack at its Omsk refinery, one its largest. The extent of damage is not known, but the Kremlin said the fire was under control.  
  • Israel launched a preemptive air strike into Lebanon, taking out Hezbollah missile installations.  
  • Iran continues to promise a major attack on Israel.

Economy - Neutral

  • The Bureau of Labor Statistics revised its jobs report downward by 818,000 for the twelve-month period from March, 2024.
  • Fed Chair Jerome Powell said in Jackson Hole, Wyo., that the time has come for rate cuts.  It is unclear as to why Federal Reserve bank leaders need to retreat to Jackson Hole in any case.
  • U.S. home-price gains outpace inflation with a 5.4% annual increase, Bloomberg reports.
  • US consumer confidence rose to a six-month high in August, The Conference Board reported.
  • Consumers reported that jobs are currently "hard to get" polled at a three year high, the Conference Board reported.

Weather - Neutral

A strong heat wave in the Midwest peaks this week and parts of this heat flow to the east coast later this week. Next week temperatures revert to a bit above normal on a seasonal basis. The outlook for September is above normal nationally, however the demand for natural gas-fired power generation has peaked.

Weekly Natural Gas Report:

 
  • Inventories of natural gas in underground storage for the week ending August 16, 2024 are 3299 Bcf;  a injection of 35 Bcf was reported for the week ending August 16, 2024.
  • Gas inventories are 369 Bcf greater than the five-year average and 221 Bcf greater than the same time last year. 
Values reflect week ending Aug. 23, 2024
Prices reflect week ending Aug. 23, 2024

Weekly Power Report:

Mid-Atlantic Electric Summary

  • The Mid-Atlantic Region’s forward power prices were slightly higher this week despite lower demand and declining natural gas prices.  U.S. natural gas futures fell below critical price support levels as rising storage inventory levels fueled more bearish sentiment.  Short-sellers seem to be capitalizing on weak fundamentals, thus driving prices below key moving averages.  Market movements seem to be less influenced by weather patterns as we come closer to an end of peak summer demand.  A series of cold fronts will begin to move through the Midwest and East later this week and weekend, followed by a deeper cooling trough next week. This breaks the heat and brings below normal temperatures into the eastern half of the nation, as the Rockies and Northwest heat up.  Future power prices averaged 2% higher over the past week in the Mid-Atlantic region for the 2025-2029 term, with more of the price support be applied to the outer terms.  Day-ahead settlement prices in West Hub for August are averaging $34.10/MWh, which is -24% lower than July’s settlement price average but still 13% higher than a year ago.
  • FERC Sets Date for Co-location Technical Conference - Late on 8/16, the FERC issued a short notice stating that it will hold a technical conference on 11/1 to discuss generic issues related to the co-location of large loads at generating facilities.  FERC first referenced its intent to hold this conference in a notice released contemporaneously with issuance on 8/2 of a letter requesting further information to complete its review of an amendment to the Talen Susquehanna interconnection agreement (ISA) filed by PJM that would authorize expansion of the amount of co-located load that can be served at that site.  PJM’s supplemental filing on the Talen ISA must be submitted no later than 9/3, which would result in a FERC order on 11/1 – the same day as the technical conference.  In both technical conference notices, FERC states that it does not intend to discuss the Talen ISA or any other specific proceeding and, instead, topics may include whether co-located loads require the provision of wholesale transmission or ancillary services, related cost allocation issues, and potential resource adequacy, reliability, affordability, market, and customer impacts.

Great Lakes Electric Summary

  • The Great Lakes Region’s forward power prices were slightly higher this week despite lower demand and declining natural gas prices.  U.S. natural gas futures fell below critical price support levels as rising storage inventory levels fueled more bearish sentiment.  Short-sellers seem to be capitalizing on weak fundamentals, thus driving prices below key moving averages.  Market movements seem to be less influenced by weather patterns as we come closer to an end of peak summer demand.  A series of cold fronts will begin to move through the Midwest and East later this week and weekend, followed by a deeper cooling trough next week. This breaks the heat and brings below normal temperatures into the eastern half of the nation, as the Rockies and Northwest heat up.  Future power prices averaged 1% higher over the past week in the GLR region for the 2025-2029 term, with more of the price support be applied to the outer terms.  Day-ahead settlement prices in AdHub for August are averaging $29.53/MWh, which is -17% lower than July’s settlement price average and -1% lower than a year ago.  Day-ahead settlement prices in ComEd for August are averaging $27.34/MWh, which is -13% lower than July’s settlement price average as well as being -8% lower than a year ago.
  • Regulators Approve $100 million for 2 Aging Coal-Fired Power Plants - The Public Utilities Commission of Ohio (PUCO) on 8/21 voted to allow AEP Ohio, Duke Energy Ohio, and AES Ohio to collect more than $100 million from Ohio electricity customers to pay for 2020 charges relating to the operation of two old coal-fired power plants.  The commissioners found the costs were "prudent and reasonable," overruling consumer groups and others that have long objected to the retail riders relating to the Ohio utilities’ shared ownership interests in the Kyger Creek plant in Cheshire in southern Ohio and Clifty Creek in Madison, Indiana.  The three companies are part owners of Ohio Valley Electric Cooperative (OVEC) that operate the plants.  The charges were codified as part of the larger HB 6 that was partially repealed.

Northeast Energy Summary

  • During this month’s Transmission Committee meeting, New England Participating Transmission Operators (TOs) reviewed the rate development process, and then actual rates starting 1/1/25.  The TOs are proposing a $30.92/kW-year increase to the Regional Network Service (RNS) transmission rate, bringing it to $185.28/kW-year - a 20% jump.  About 40% of the increase is due to a true-up of actual revenues compared to those required last year given that actual loads were much lower than expected, with 30% of the increase due to growing rate base, and ~20% due to lower than expected loads.  Going forward, the TOs will host a Technical Session on 9/6/24 to allow interested parties the opportunity to dig in further.  TOs were asked if they would consider a different billing determinant that is not so sensitive to true-ups, but TOs responded that they are following the Tariff and expressed no interest in changing the determinant.  Looking forward, the TO’s provided a 5-year RNS rate forecast.  Assuming load is held constant, the RNS rate is expected to increase from $185/kW-yr in 2025 to $217/kW-yr in 2029.  Rate base additions across the period total $1.67 billion; about half are asset condition replacements with the balance being new construction and “other projects.”
  • During this month’s Markets Committee (MC) meeting, ISO-NE continued discussion of its workplan to implement Capacity Auction Reforms (CAR) that will transition the forward, annual capacity market to a prompt and seasonal market with accreditation reforms.  ISO-NE first presented its draft objectives/scope at the July MC meeting, where it proposed three objectives: (1) whether the scope item can be completed in time for effect beginning in FCA 19; (2) to prioritize design work that “provides the most value to the region in the shortest time”; and (3) to avoid project scope expansions that risk the first two objectives.  In terms of scope, CAR core items were broadly described as (1) prompt; (2) seasonal; and (3) accreditation.  During the August discussion, ISO-NE further explained that inherent in the RCA and prompt/seasonal design changes are improvements to several fundamental market design principles, including those raised by several stakeholders.  With respect to scope, ISO-NE explained that it has amended its proposed scope to include offer price formation and mitigation and is continuing to consider whether to include RMR resource treatment or tie benefits in its final scope (among others).  ISO-NE will continue presenting its draft objectives and scope and responding to stakeholder comments before finalizing the CAR scope at the October MC meeting.  CAR must be in place for Capacity Commitment Period (CCP) 19, scheduled to start on 6/1/28.  

ERCOT Energy Summary

CAISO, Desert Southwest and Pacific Northwest Energy Summary

We are leaving behind what were the coolest days of the summer over the weekend and returning to what counts as normal for the last few days of August. Temperautres in the major coastal cities will average slightly above/below normal over the next few days as the onshore flow holds things in check; meaning we’ll see the coast fall into that perfect zone of 70s – 80s while the inland areas tip into 90ish cooling demand territory. We then expect the pattern to grow warmer late this week as ridging builds in across Western Canada, ushering in above to much above normals in the Pacific NW, then eventually heating up the Rockies and the DSW cities which will see highs in the 100 – 105O F range this week and then add 5O to that range when we make it to the long weekend. Looking into September, overall temperatures are likely to remain well above normal in the West which is a familiar setup for the region and is often the power zone for extreme heat events.

West daily gas index prices crumbled over the weekend in tandem with the temperatures, dropping below $2.00 per MMBtu for the three-day package at PG&E’s gate to the city while SoCal’s gate price for the weekend fell to the lowest level of the summer at $1.23. Last week saw an end to the Redwood path maintenance as the volume flowing through the compressor increased by close to a half a Bcf bringing throughput to PG&E’s system close to 2.0 Bcf/d. The Monday effect saw the daily index jump for flow today as the collective sendouts on the two systems are now back above 4.0 Bcf per day, after barely holding onto 3.0 Bcf/d on Saturday. But PG&E’s daily city gate settle of $2.28 and SoCal’s at $1.56 is only impressive in contrast to those weekend prints. Those two prices are also fairly close with the September package if you haven’t inked that hedge yet. High operational flow orders (OFOs) will remain an ever-present risk until heat jacks up A/C demand. Power prices were similarly dull, dropping to the single digit level in SP15 on Saturday as the lack of demand collided with healthy flex capacity and high interregional transmission plus solar generation cranking in the deserts. Daily prices for flow today recovered into the low-$30s in both zones, which is where they should reside until we see heat arrive in early September.

Coming soon to your (California) electric bill: a monthly charge to extend Diablo Canyon's life. Under a PG&E proposal to the CPUC, their customers are slated to pay $2.07 per month into a fund to extend the life of their nuke station. SCE and SDG&E customers are being asked to kick in $1.25 and $0.97 per month, respectively, as the plant contributes to overall stability on the CAISO grid. Those are just expected first year costs, ratepayers in the state know the typical direction of travel of these sorts of line items on bills. The way the plan currently reads, if PG&E overcollects in its effort to cover expenses at the station, it is allowed to hold onto the dollars to fund projects in its territory while ratepayers in the south get zip. If the WSJ article that dropped last week offers any suggestions, they can work on the landscaping.

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