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In This Issue

More Pipelines for New England: ‘Gold-plating’ or Necessity?

Analysts Expect Lower Clearing Prices in 2019/20 PJM Capacity Auction

Natural Gas and Oil Market Update

EIA - Weekly Natural Gas Storage Report

NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price


NOAA 6 to 10 Day Outlook
Color indicates the probability of forecasted temperatures being above or below a historical average for the period.


Market Overviews

More Pipelines for New England: ‘Gold-plating’ or Necessity?

RTO Insider | May 19, 2016

It all comes back to pipelines.

Discussions about New England’s energy future invariably end up focused on the outsized role natural gas plays in the region’s power mix, and how that aligns or runs counter to various policy goals. Also debated is who should pay for pipeline build-outs.

A discussion at the 23rd Annual New England Energy Conference on Wednesday, presented by the Northeast Energy and Commerce Association and the Connecticut Power and Energy Society, was no different.

Most speakers agreed that some pipeline capacity is needed (though environmental groups, energy efficiency advocates and LNG suppliers dispute that premise).

The discussion came three weeks after the suspension of the Northeast Energy Direct pipeline and amid ongoing controversy over whether regulators should allow electric ratepayer support for the proposed Access Northeast project.

Dan Dolan, president of the New England Power Generators Association, said new generation clearing in recent Forward Capacity Auctions show the market has responded to the region’s needs. Smaller gas infrastructure projects shows that contractual commitments from distribution customers are increasing supply without electric ratepayer support, he added.

“We look through any public policy proposal through the prism of subsidies. Given that rubric, no, we don’t support” Access Northeast, Dolan said. “As we see contracts, that [demonstrates what] should be built, but I don’t think we need to gold-plate the system.”

Not so, according to Camilo Serna, vice president of strategic planning and policy for Eversource Energy, who disputed the subsidy characterization. “The alternative is that the [electric] customers will be paying more in the winter,” he said.

Eversource, which is a partner in Access Northeast, predicts consumer electricity costs will drop by $1 billion to $2 billion annually with increased natural gas supply.

“The market hasn’t been able to deliver that infrastructure. The generators don’t have the incentive to commit [to pipeline contracts]. I don’t think it’s gold-plating if you see that we really haven’t made any gas infrastructure investments for 20 years,” Serna said.

Whether the investment falls on pipeline developers or electric ratepayers will be resolved for Massachusetts by the state’s Supreme Judicial Court. Arguments were held recently on an order by the state’s Department of Public Utilities allowing pipeline cost recovery. The order was challenged by Massachusetts Attorney General Maura Healey.

“We don’t think it’s legal. It’s not consistent with the [state] restructuring act, which was to take ratepayers out of the business of investing in large infrastructure projects and put the risk on private investors,” said Rebecca Tepper, deputy chief of the attorney general’s energy and environmental bureau.

“We get very nervous about making big infrastructure decisions on the backs of ratepayers based on something that happened two winters ago when the circumstances today are entirely different,” she added.

Although ISO-NE is project-neutral, it says more pipeline capacity is necessary for stable and affordable electricity, as nearly half of New England’s supply comes from gas-fired generation, a share that is expected to increase.

“We still see natural gas as one of our primary challenges,” said Anne George, vice president, external affairs and communications for ISO-NE. “We see demand for it to continue to grow and we have not built any pipeline infrastructure to support that growth.”

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Analysts Expect Lower Clearing Prices in 2019/20 PJM Capacity Auction

RTO Insider | May 16, 2016

By Suzanne Herel

Analysts are predicting lower clearing prices for PJM’s 2019/20 Base Residual Auction, which began Wednesday and concludes today. Results are to be published May 24.

Last year’s auction, held in August, saw prices of $164.77/MW-day for Capacity Performance in most of the RTO, with the ComEd zone at $215/MW-day and Eastern MAAC hitting $225.42. Base capacity priced about $15/MW-day lower. (See PJM Capacity Prices up 37% to $165/MW-day.)

Morningstar analyst Jordan Grimes forecasts a price of $160/MW-day for the Capacity Performance product in the RTO and MAAC regions and $180/MW-day in EMAAC and SWMAAC. He predicts base capacity will price at a discount of $10/MW-day.

Julien Dumoulin-Smith of UBS Securities reduced his forecast CP price from $140/MW-day to $125/MW-day for the RTO region, with prices higher in EMAAC, DPL-S, PS-N and PSEG ($200/MW-day) and ComEd ($225/MW-day).

Grimes took note of ISO-NE’s Forward Capacity Auction 10 in February, in which prices dropped by more than a quarter. (See Prices Down 26% in ISO-NE Capacity Auction.)

“PJM participants fear a similar fate,” Grimes wrote. “We believe this fear is unwarranted. PJM will have to clear a significant amount of coal and peaking gas capacity in the upcoming auction.”

In a note to investors last week, Dumoulin-Smith said new gas generators, a lower load forecast and the Supreme Court ruling upholding FERC jurisdiction over demand response compensation will likely keep prices from rising in most of the region.

Dumoulin-Smith also said he expects a larger differential between CP and base capacity than last year. “We believe we could well see a base print for the RTO region below $100/MW-day. This pricing pressure could help limit any increase in demand response product availability.”

The RTO plans to acquire 157,092 MW of capacity for delivery year 2019/20, 80% of it Capacity Performance. This year’s price cap is $448.95/MW-day, compared with $450.86/MW-day for the 2018/19 auction.

This is the second and last year that the auction will offer two products. The base product will be eliminated beginning in the 2020/21 delivery year.

UBS predicts “price compression” in EMAAC, with Talen Energy’s Sapphire portfolio clearing at least partially.

Morningstar’s model predicts Exelon’s Quad Cities nuclear plant will not clear. Exelon CEO Chris Crane said earlier this month that the company will close Quad Cities if it doesn’t clear the auction and Illinois legislators don’t approve measures to shore up the money-losing plant. (See Absent Legislation, Exelon to Close Clinton, Quad Cities Nukes.)

UBS predicted disappointment for “more RTO-exposed generators” such as Dynegy, NRG Energy and FirstEnergy. It said that although it expects new capacity resources to clear the auction, their ability to obtain financing is in question.

“We have noted a meaningful slowing in development activity in recent months. Banks appear to be increasingly cautious to lend against assets given the wider pullback in power valuations and cumulative exposures to merchant PJM increasing. We expect this slowing to principally impact the 2020/21 auction next May 2017.”

Read More:

Natural Gas and Oil Market Update


Natural Gas Falls to Three-Week Low

The Wall Street Journal | May 19, 2016

Natural gas prices fell to a three-week low Wednesday as mild temperatures in the next two weeks are expected to limit demand.

Extreme temperatures lead to higher natural-gas consumption, either as an indoor-heating fuel or as a source for power generation to run air conditioners. Natural-gas demand typically declines at this time of year as mild weather reduces the need for heating or cooling in homes and offices.


Oil Prices Tumble on Dollar Strength, Jump in U.S. Inventories

MarketWatch | May 19, 2016

Crude oil prices slipped on Thursday on a stronger dollar and an unexpected increase in U.S. crude inventories.

The fall comes after a rally in recent sessions fueled by production outages in Africa and Canada and production declines across the globe that have propelled expectations of shrinking the global oversupply.

EIA - Weekly Natural Gas Storage Report

EIA - Weekly Natural Gas Storage Report

Working gas in storage was 2,754 Bcf as of Friday, May 13, 2016, according to EIA estimates. This represents a net increase of 73 Bcf from the previous week. Stocks were 791 Bcf higher than last year at this time and 795 Bcf above the five-year average of 1,959 Bcf. At 2,754 Bcf, total working gas is above the five-year historical range.

NYMEX Natural Gas Week-to-Week Price Change NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price ($ per mmBtu)

NYMEX Natural Gas Week-to-Week Price Change - Five Yearly Snapshot

Disclaimer: The information contained in these reports is gathered from public and/or internal sources and is presented solely for the convenience of our customers and Newsletter Subscribers. Patriot Energy Group makes no representation or warranty, express or implied as to the accuracy or completeness of the information set forth in this newsletter, and Patriot Energy shall not have any liability to any person or entity resulting from use of this information in any way.
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