Energy Pricing & Market Intelligence: What’s Happening Q4November 14, 2013
Presenters: Jonathan Lee, Senior Energy Procurement & Advanced Analytics Manager, and Kristopher Borgert, CEP, Senior Energy Procurement Analyst with Ecova
ENERGY MARKET INTELLIGENCEHere is What We are Going to Tell You:
Natural gas and electricity prices are more correlated as the nation becomes reliant on gas-fired generation.
• Wholesale gas and electric prices are steadily climbing off 10-year lows experienced in 2012. Even with the recent pullback over the past few weeks, we expect to see an impact to the delivered cost of new supply contracts and regulated rates when compared to the delivered cost throughout 2012.
Fundamental Drivers – Bulls and Bears.
• Winter Weather: Cold temperatures are the main market driver at this time of the year. However, a mixed consensus on the 2013/2014 winter forecast will likely inject volatility.
• Natural Gas Production, Demand, Storage: Production is at an all-time high in concert with demand continuing to grow. Storage has outperformed historical norms, resulting in a comfortable level of gas in storage heading into the withdrawal season.
• Longer-term drivers: A wave of coal plant retirements, LNG exports, and a new round of EPA regulations will boost gas demand in the years to come.
Northeast Natural Gas: The Northeast continues to have the highest spot prices in the country as the region struggles to find enough pipeline capacity to get gas to the hungry market.
Hot Spots: Regional factors at play when considering energy procurement strategy.
PRICES ARE STEADILY RISING OFF OF 10-YEAR LOWS IN APRIL 2012
12 month retailcontracts aregenerally below2011 levels, but regional factors still at play
Analysis from11/8/2013
MARKET FUNDAMENTALS 14 November 2013
Near Term Next 60 Days
Short Term 2 to 6 Months
Medium Term 6 to 12 Months
Long Term 1 to 5 Years
Storage
Production
Demand
Electric Power Sector
Weather
Tropical Storms
LNG
Economy
WINTER TEMPERATURE OUTLOOKNOAA/NWS, EIA; 8 November 2013
EIA projections are showing that Heating Degree Days will likely come in very similar to last year and the 10-year average.
Monthly Outlook
WINTER TEMPERATURE OUTLOOKNOAA/NWS, AccuWeather, TWC; 11 November 2013
Winter 2013/2014 forecasts from AccuWeather (below), The Weather Channel (Right), and NOAA (Bottom right) are showing a wide variety of predictions. Uncertainty in the weather drivers could bring significant market volatility.
Winter Outlook – Mixed Consensus
HURRICANE OUTLOOK ~ AVG YR, LOWER IMPACT FROM GULFNHC/NOAA; 14 November 2013
Atlantic Hurricane Outlook
June 01 - Nov 30
Average Values
(1981-2010)
Record Values
2013 Projected Values
2013 Actual Values
Mild (Named Tropical Storms)
12 27 (2005)18 (CSU); 13-20 (NOAA
70% confidence)12
Moderate (Hurricane Categories 1-2)
6 15 (2005) 9 (CSU); 7-11 (NOAA) 2
Intense (Hurricane Categories 3-5)
38 (1950); 7 in (2005)
4 (CSU); 3-6 (NOAA) 0
2012 Atlantic Hurricane Season 2013 Atlantic Hurricane Season
UNITED STATES – SHALE GAS PLAYSEIA
NATURAL GAS PRODUCTION - ON THE RISEEIA
Natural gas production has climbed to record levels despite a steep decline in the natural gas drilling rig count.
In 2011 and 2012, more than half of the new wells produced both oil and natural gas.
NATURAL GAS STORAGE
Short-Term Trend: Robust production, coupled with increased power burn from coal and nuclear compared to last year has caused gas storage injections to outperform the norms this year.
GAS POWER BURNS – NORMALIZING A BITEIA – July 2013 YTD
0
100
200
300
400
500
600
2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013
Central Florida Mid-Atlantic Northeast Southeast Texas West
terawatt
hours
Hydro
Nuclear
Natural Gas
Coal
AUTUMN NUCLEAR OUTAGES WELL BELOW LAST YEAR AND THE FIVE-YEAR AVERAGE
SPRING 2014 OUTAGES EXPECTED TO BE AT A 4-YEAR LOW.
80843; 83%
17000; 17%
Total Nuclear Capacity (MW)
Total In Service
Peak Autumn 2013 Outages
Peak Autumn 2012 5-Year Avg Out Peak Autumn 2013 -
5,000
10,000
15,000
20,000
25,000
30,000
35,000 32,000
21,500
17,000
Ou
tag
e (M
W)
COAL PLANT RETIREMENTS
Total Capacity of U.S. Coal Plants Already Shut: 15,677 MW
Total Capacity of U.S. Coal Plants Scheduled to be Shut: 39,749 MW
44,742
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2011 2012 2013 2014 2015 2016 2017
MW
MW
Coal Retirements (MW) Planned Coal Retirements (MW) Cumulative Retirements (MW)
REGULATIONS PLAYING A ROLE IN CHANGING MARKET DYNAMICS
U.S. EPA: Mercury and Air Toxics Standards (MATS) (Dec 2011)
– Sets emission limits on for mercury, particulate matter, sulfur dioxide, nitrogen oxides, and certain metals emitted by coal- and oil-fired plants.
– Existing generating facilities have 4 years to comply.
U.S. EPA: Carbon Pollution Standards Proposal (Sept 2013)
– Limitations on carbon-dioxide emissions from all future coal and gas-fired power plants.
– 1,100 pounds of carbon dioxide per MWh for coal plants (most efficient existing coal plants operate between 1,700 – 1,900 lbs/MWh).
– 1,000 pounds of carbon dioxide per MWh for gas-fired plants.
U.S. EPA will look to propose carbon emission standards on existing power plants by June 2014.
LNG – FROM IMPORT TO EXPORT
LNG export capacity is expected to ramp up from 0 to 9.5 Bcf/Day export capacity from 2016 through 2020 from 5-10 terminals (~10% of US consumption).
4 terminals are conditionally approved with 4-5 year build schedules.
NATURAL GAS FORWARD CURVE(NYMEX) – 12 November 2013
Dec-
13
Jan-1
4
Feb-1
4
Mar-
14
Apr-
14
May-1
4
Jun-1
4
Jul-
14
Aug-1
4
Sep-1
4
Oct
-14
Nov-1
4
Dec-
14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-1
5
Jun-1
5
Jul-
15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
Dec-
15
$3.00
$3.20
$3.40
$3.60
$3.80
$4.00
$4.20
$4.40
$4.60
$4.80
$5.00
19-Sep
1-Oct
15-Oct
12-Nov
$/M
MB
tu
NATURAL GAS $MMBtu (12-Month Strip) – 8 November 2013 – Short Term Trading Channel
NORTHEAST NATURAL GAS
Spot Market pricing
Capacity Constraints
Pipeline Expansion in the Northeast
Winter 2013/2014 Expectations
SPOT NATURAL GAS PRICESNortheast Has The Highest Spot Prices In The Nation
CAPACITY CONSTRAINTS DRIVING ELECTRIC AND NATURAL GAS COSTS HIGHER
CANADIAN NATURAL GAS IMPORTS
Imports down nearly 50% this time last year.
Imports from Canada represent 10.5% consumed in the US.
Deep Panuke online. Only operating at 2/3 production. Full production not expected this year.
REDUCED LNG IMPORTS INTO THE REGION
New England has historically depended on imports of LNG for several reasons:
– Lack of local area storage facilities
– High seasonal demand peaks—especially in the winter
– Lack of locally produced natural gas
– Remoteness from the rest of the North American natural gas grid
MARCELLUS PIPELINE PROJECTSome Relief Coming to New York And New Jersey
NORTHEAST WINTER 2013/2014 RECAP
Capacity Expectations– NY and NJ should see some relief
– NE pipelines expected to be at or near capacity
– Limited relief from Canadian imports
– Potential for some increased LNG spot cargo imports
Weather Dependants– Temperatures in the NE
expected to be 3% colder
than last year.
ELECTRIC WHOLESALE PRICESEcova 8 November 2013
REGIONAL ELECTRIC HOT SPOTS:Natural Gas Prices Not The Only Market Driver
TEXAS – SUMMER RESOURCE ADEQUACY• ERCOT raising System Wide Offer Cap (SWOC) to $9,000/MWh in 2015.
NEW YORK/NEW ENGLAND – WINTER PIPELINE CONSTRAINTS• Due to high reliance on natural gas fired electric generation, New York and New England
experienced widespread natural gas pipeline constraints during the peak winter heating season. This new phenomenon resulted in large spikes in real-time electric prices during the winter season.
CALIFORNIA – ELECTRIC PRICES ON THE RISE• Earlier in 2013, Southern California Edison announced the permanent retirement of the San
Onofre nuclear power plant, which had provided cheap, base load electricity. SCE and SDG&E scrambled to line up additional resources to meet peak summer demand. Coupled with a relatively weak hydro output year, wholesale electric prices are more reliant on gas-fired generation and are subject to grid reliability issues.
PJM ISO – CAPACITY INCREASES IN 2013-2015• With a wave of coal-plant retirements, capacity costs in various regions throughout the PJM ISO
are seeing large year-over-year increases to incentivize new generation construction. Capacity can typically account for 20% of overall electric costs.
MAJOR TAKE-AWAYS
NATURAL GAS AND WHOLESALE ELECTRICITY ARE MORE CORRELATED
• Even though prices are above 10 year lows experienced in April 2012, there are still decent buying opportunities in some regional markets.
WEATHER-DRIVEN MARKET• Despite a relatively slow start to the winter heating season, bouts of cold weather in the
Midwest and Northeast this winter will drive electric and natural gas prices higher.
NEW ENGLAND EXPECTED TO SEE ANOTHER VOLATILE WINTER• Although pipeline projects may bring some relief to New York and New Jersey, New England is
likely in for another very volatile winter season.
LONGER TERM FUNDAMENTALS AT PLAY• The wave of coal plant retirements in 2015 and the increased push toward becoming a
natural gas exporting nation will tighten supplies and likely result in higher prices and even more market volatility.
Upcoming Ecova Webinars
INSIDE ENERGY & SUSTAINABILITY
What’s Your 2014 Energy Resolution? – November 21st at 10am PST
Waste Management: Why You Should Care – December 5th at 11am PST
The Cost of Bad Data: A Case Study – December 10th at 1pm PST
Questions, comments, suggestions? [email protected]
Q&A Session
Thank you!