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Energy Market Update 09212022
Music Artist: Brothers Johnson
Song Title: Strawberry Letter 23
NYMEX NG: ~$7.777/mmbtu
WTI: ~83.84/bbl
PJM RT LMP: ~$105.25/mWh current 5 min interval
ERCOT RT LMP: ~$78.03/mWh current 5 min interval
Long Island Zone K: ~$94.47/mWh current 5 min interval
MISO: ~$280.90/mWh current 5 min interval
Bitcoin: ~$18916 USD
Weather
First and foremost, my heart goes out to all of the estimated 1.1mm folks out of electricity in Puerto Rico. First it was Maria and now its Fiona. Just terrible. However still we only have 2 nameed storms currently and certainly not over. Currently we are sitting in a La Nina for approximately 3 years now and also 70% of the continent is more dry than normal with low precipatations throughout this calender year thus far. 6-10 and 8-14 day temps looking quite colorful. Ive said this before however this summer was the hottest in a ~70 year period, and as far as ISO’s TX had lead the charge with their #1 hottest recorded summer. Seasonal update from NOAA is still looking above normal for most of the country. Just keep in mind hurricanes are bearish sentiments for price action.
Market Intel
Whew wow. Where to start here. How about the CFTC coming out with their investigation in the energy derivitives market. The fact is that there is too much specualtion money into the market and now an agency is looking to it. More popcorn please. Suppliers are just really being reluctant to supply offtakers in today’s market, even for ‘large, credit worthy clients’. ’Too volitale’ they say, well then where does the offtaker go into that situation? Choice is no longer a choice, is a service provided to those who have appetite for risk (that is offtaker wearing most of it). I mean someone has to wear it. In other news the IMM (Independent Market Monitor) in PJM (yes more acronyms) made a statment recently talking about new clean capacity products that would allow a carbon free capacity product to meet your climate change needs. All I see is a suggestion to create another cost coeffienct in the supply price for offtakers. Nothing really physical about it. Interesting however not so much until its printed Interesting to see ERCOT’s Demand Side Working Group looking at ERS (Emergency Response Service) and that ~1GW of ERS was deployed for just about 3ish hours on the 13th of July 2022. Looks like ERCOT expected more and the QSE’s will need to answer. ERCOT saying half of the QSE’s portfolio failed to perform successfully, expecting 95%. Hmmmm
Electricity
Very interesting, if you run the numbers, to see the % increase from the lows on ATC (Around the Clock) forward pricing compared to all time contract lows. That ranges from 90% to 150% increases on the calendar 2023 strip. Still there is backwardation in the curve but still up ~25-55% for the 2024-2026 12 mth calendar strip for electricity around the clock. Again seeing new RPS mandates tightened and getting more aggressive. Wanted to mention ISONE slightly since their desperate needs for LNG to help fuel the electricity demand, it’s a real problem. I mention LNG here later however if there ISONE doesn’t meet that demand for electricity the constraint will be real considering the US wants to supply LNG to as many who want it. Get rid of the Jones Act will you so we can help our own. Just another FYI, the top five purchasers of renewables according to the clean energy buyers association are 1) Amazon 2) Meta 3)Verizon 4) Google 5) Microsoft. Amazon has announced 2.5 GW of planned projects so far this year.
Natural Gas
Market has dipped slightly back under the $8 range with a winter 2022 strip now under $8/mmbtu. Im watching storage closely. Expectations are wide currently for this week but most folks forcasting around a ~90BCF injection which would continue to soften the delta of the ~3.25ish TCF typical target for NG in the ground. Currently storage for week ending 9/9 saw and injection of 77 BCF and only one storage facility withdrawing and thats in the pacific due to the abnormal heat they that they’ve been experiencing for over the past few weeks. Storage is -7.4% down YoY and -11.3% down over the 5 year average. If we see under 3 TCF (which we most likely wont see) come middle of October, it could be a strong bullish rally for price. Storage is expected for a below average peak build this year. Production, also a signal, still up YTD close to 4 BCF/day and Demand is right there with supply at growth of about ~4BCF/day. Folks, perhaps, want to see dry production around and above 100BCF/Day however that hasnt printed. Power burn demand for NG has dropped signifncantly from the highs and YTD average is right around 34 BCF/Day.
Wanted to talk about LNG (that liquid gas) because it will be a big key indicator going forward. At least what im seeing is now that there is money available from banks to producers but there are major stipulations. Basically you have to be investment grade, credit worthy and be all the way down the process to completion. Cheinere for example has recevied the cheapest project financing recently for their projects, but its Chienere. They are massive. Major constraint in physical infrastructure markets along with EPC (Engineering Procurement and Consulting) variables that are just casuing lead time to lag significantly. If you have a project that is FERC approved and your credit is backed as strong as the HULK, theres money available for projects apparently. Some folks are acutally providing supply to buyers over and above the deliverable capacity due to bullishness on the outcome that the project will come online. Hedge funds and traders are the buyers currently and in that game, volitality is appreciated. Until LNG output gets above 12 BCF/day consistently, and im sure we will get there, that could be another signal for a upward price move.
Charts/references
CHECK EM
https://ir.eia.gov/ngs/ngs.html
https://www.cpc.ncep.noaa.gov/products/predictions/610day/index.php
https://www.cpc.ncep.noaa.gov/products/predictions/814day/index.php
https://www.cpc.ncep.noaa.gov/products/predictions/long_range/seasonal.php?lead=4
https://www.nhc.noaa.gov/?atlc
https://www.energypolicy.columbia.edu/carlos-torres-restoring-power-puerto-rico
Conclusion
Markets are unlike anything anyone has ever seen before. There are new variables that now need to be included into the risk model. For example, banks ultimately have more appetite currently to fund renewables and hydrogen projects to diversify their portfolios, this is a thing. Also just another facinating thing. If you want to listen to the gentlemen who was responsible for rebuilding Puerto Ricos entire electrical transmission and distribution network from the ground up after hurricane Maria, see the link. Absolutely fascinating regarding how hard electricity is to build. Folks we certainly live in interesting times. Everyone wants the intel but unfortunately no one has this crystal ball to determine where the executable decisions reside. Keep going yall. The US still has the cheapest BTU in the world and its all about the BTU’s. PEACE
*views and opinions are my own and all data comprised can be looked up and verified by a simple search engine
This article has been written by @TURNUPTHEBASS
