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MARKET TREND ANALYSIS

Weekly Energy Market Updates by Region - Archive

 

 

 


Issue week: October 24th, 2019  (Wk 43)

 

POWER MARKETS

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WEST Index prices continue to clear at very high levels during the nightly ramp as both the deration of a major AC transmission line and the deactivation of a key DC line have the California grid searching for expensive fast-ramping generation. In the term market, the decision by SoCal Gas to restore line 4000 on November 2 has had a bearish effect on prices for this winter, next summer, and calendar years 2020 and beyond in general.

NATURAL GAS 

The EIA reported Thurs-day morning that, for the week ending October 18, U.S. inventories in-creased by 87 Bcf, once again validating ana-lysts’ predictions of 78-95 Bcf. Total stockpiles now stand at 3,606 Bcf, up by 16.8% from a year ago and 0.8% above the five-year average for the same week.

The unsurprising stor-age report yielded mini-mal price movement im-mediately afterward. However, prices for all forward months through March 2021 later pro-ceeded to fall by ap-proximately $0.01/MMBtu.

ERCOT  Real-time prices continue to trend lower for the week, alt-hough they remain strong in the West Load Zone, where the MTD av-erage for basis alone is over $44/MWh. The ORDC adder for the month continues to erode, having settled another $7/MWh lower to $5/MWh. Term prices are relatively unchanged from last week.

EAST  Conflicting weather forecasts have created intraday movement as November draws closer. The November forward price has fluctuat-ed by approximately $1/MWh in both directions from open to close. As outage season gives way to winter, weather forecasts will be the main driver moving the forward curve

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WEATHER 

While extreme heat and the at-tendant risk of wildfire proliferation persist in California over the 1-to-5-day forecast period, temperatures will be low in the Central United States.

In the 6-to-10-day forecast period, those low temperatures in the Central United States will drop even lower as frigid pockets ap-pear across the Great Plains. In contrast, warm patches will devel-op along the East Coast.

The 11-to-15-day forecast period should feature seasonably aver-age temperatures throughout most of the country, although tempera-tures should be below normal in the Northern Great Plains.
 



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REGIONAL INDEX PRICES AT RECORD LOWS WHILE HEAT BRINGS HOURLY PRICE SPIKES

 

October is considered a “shoulder” month in the energy industry, a time when weather is generally mild and demand is typically subdued. Genera-tors and transmission operators often take advantage of this seasonal lull to disconnect for annual maintenance. Despite important generation and transmission facilities unavailable, index prices in much of the country are at record lows for the month of October (see table below). 

Low natural gas prices – the fuel of price setting electric generators – combined with ever increasing renewable generation is putting downward pressure on whole-sale electricity prices. Renewable energy facilities are often financed with long term purchase agreements and receive revenue from non-energy Re-newable Energy Credits (RECs). With no fuel costs and revenue coming from RECs, the facilities often bid zero to daily energy markets which lowers average index prices in the region.

Low prices do not necessarily mean low volatility however, heatwaves saw high hourly volatility across certain regions. Scorching temperatures early in the month caused the difference between high and low hourly prices to reach $2000 / MWh in ERCOT and $118 / MWh in PJM (both records for the month of October). Meanwhile lingering heat is causing hourly price spikes above $150 / MWh in California. Renewables can exacerbate hourly volatility when they become unavailable due to the sun going down or a lack of winds.

Low electricity prices ultimately depend in large part on low natural gas pric-es, but eventually existing wells will be depleted and need to be replaced. It remains to be seen whether natural gas prices at multi-year lows (see below chart) can adequately support new exploration and production. On the oth-er hand, increasing renewable energy mandates of many states will contin-ue to put long term downward pressure on average wholesale electricity prices.

 

 

 

 

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