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In This Issue

Cheap NatGas Reduces 2016 Power Prices, Accounts for More Generation

FERC Conditionally Approves PJM’s Excess Capacity Plan

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

Cheap NatGas Reduces 2016 Power Prices, Accounts for More Generation

Natural Gas Intelligence | January 12, 2017

Low-cost natural gas pushed year/year average wholesale electricity prices down at major trading hubs across the United States in 2016 and encouraged more use by power generators, the Energy Information Administration (EIA) said Wednesday.

Average wholesale electricity prices in 1Q2016 were significantly lower year/year, ranging from 24% lower in California to 64% lower in New England, according to the EIA's latest Today in Energy note. Monthly wholesale prices for most of 2016 were slightly lower than those in 2015, averaging between $20-45/MWh. Natural gas, which typically determines the generation cost in most markets, became for the first time the primary source of U.S. electricity generation for the entire year.

Monthly natural gas-fired generation first exceeded coal-fired generation as the nation's primary source of power in April 2015. Natural gas then became the leading source nearly every month of 2016, accounting for an estimated 34% of total annual utility-scale power generation, compared to a 30% share for coal-fired generation. Coal and gas each accounted for 33% of U.S. power generation in 2015, according to EIA data.

The cost of gas delivered to power generators averaged $2.78/MMBtu during the first 10 months of 2016 -- the latest data available -- which was 17% lower than the average price during the same period in 2015. Milder winter weather in early 2016 also kept prices lower than during the winter of 2014-2015, when wholesale prices in the Northeast peaked in response to cold temperatures and infrastructure constraints that prevented more fuel from getting into the region.

The average wholesale electricity price in ISO New England, which operates the region's grid, was $34/MWh in February 2016, compared to $138/MWh in February 2015. Wholesale power prices have began increasing again, moving up in December with colder winter weather that has pushed natural gas prices up, too.

Most of the nation's power capacity additions over the last 20 years have been gas-fired units, but as prices started heading south in 2009, it further threatened the cost-competitiveness of coal. While the EIA said in November that coal could surpass gas this winter as gas prices delivered to the power sector rise, most of the nation's energy generation going forward is expected to come from gas and renewables, which continue to gain market share.

EIA said electricity generating facilities were scheduled to add about 24 GW of utility-scale capacity in 2016, more than 90% of which were natural gas, solar and wind additions. Coal units continued accounting for the most retirements last year as well, with more than 7 GW of coal-fired capacity retired, or about 2.5% of the nation's existing coal capacity at the end of 2015.

The EIA said last week when it released the Annual Energy Outlook 2017 that it expects gas production to continue increasing in the years ahead, with relatively low and stable prices that support higher levels of domestic consumption, including in the electric power and industrial sectors.

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FERC Conditionally Approves PJM’s Excess Capacity Plan

RTO Insider | January 12, 2017

FERC has approved PJM’s proposal for selling back excess capacity in this February’s third Incremental Auction for the 2017/18 delivery year.

The commission, however, agreed with objectors on several points, prompting it to require key revisions to the plan (ER17-335).

“While we acknowledge deficiencies in PJM’s filing … we also agree with PJM that it is just and reasonable for PJM to alter the shape of its sell-back offer curve to a straight line, eliminating the potential that the relevant Incremental Auction could clear at or near $0/MW-day,” the commission said.

The proposal dealt with PJM’s transition to the Capacity Performance market construct, which was approved in 2015 and gradually implemented over the 2016/17 and 2017/18 delivery years. The RTO had already obtained capacity for those years under previous rules, so the approval also established two transition auctions to procure any additional capacity needed.

The transition auction for the 2017/18 delivery year saw the RTO procure 10,017 MW of previously uncommitted capacity. PJM holds three IAs following the initial Base Residual Auction for a specific delivery year, during which committed capacity resources can buy back their supply obligations and PJM can acquire or release capacity in response to updated load forecasts. The IAs for the transition years also covered the results of the transition auctions.

The methodology PJM used for releasing excess capacity from the 2016/17 delivery year resulted in 4,818 MW sold at an average price of $4.79/MW-day, and PJM warned that using the same process to release any of the 10,017 MW for 2017/18 would potentially result in an offer of $0/MW-day — with no money flowing back to load.

To better reflect the capacity’s value, the grid operator proposed an alternative approach that would identify any necessary changes to the amount of capacity the RTO had already procured and create a price curve for selling any excess.

PJM additionally proposed that any excess that doesn’t sell at the auction would not be eligible to become excess-commitment credits. PJM creates the credits from excess capacity that doesn’t clear IAs and allocates them to load-serving entities, who can trade them or use them to replace existing capacity requirements. (See “Proposal Chosen for Capacity Release,” PJM Markets and Reliability and Members Committees Briefs.)

FERC approved PJM’s plan but ordered several changes in recognition of objections made by American Municipal Power. The commission directed PJM to revise the price curve so that it begins at the lowest price point on the current sell-back offer curve and ends at the BRA clearing price for that delivery year. It also ordered allocating uncleared excess capacity as excess-commitment credits and consolidating separate capacity sellbacks into the single auction.

“Performing two auctions in this manner will result in creating two prices for the same product in the same auction, without any justification for the different price,” the commission said.

FERC clarified that the approved changes to the sell-back procedure only apply to the third IA in February.

PJM Independent Market Monitor Joe Bowring was surprised the commission put so much effort into what he felt was a minor detail, but he was still disappointed that his office hadn’t intervened in the docket. During discussions to secure stakeholder endorsement of PJM’s proposal, the Monitor repeatedly objected to the plan.

Read More:

Natural Gas and Oil Market Update


Natural Gas Prices Edge Lower

The Wall Street Journal | January 12, 2017

Natural gas prices reversed course to edge lower Wednesday as exceptionally warm weather continued to weigh on the market.

Volatile weather forecasts have caused natural gas prices to swing in recent weeks. Prices sold off to a one-month low on Monday but rebounded sharply Tuesday as bullish speculators bought in at bargain prices and some long term forecasts began to appear colder.


Oil Rises About 2 Percent On Supply Cuts, Record China Demand Forecast

Reuters | January 12, 2017

Oil prices rose nearly 2 percent on Thursday on news that key crude exporters, including Saudi Arabia and Russia, were cutting production as promised in a deal to reduce a global glut and on forecasts of record demand in China.

Brent crude oil LCOc1 hit a high of $56.43 a barrel before easing slightly, and it was up 95 cents at $56.05 by 1:00 p.m. ET (1800 GMT). U.S. crude CLc1 rose 78 cents to $53.03 a barrel.

EIA - Weekly Natural Gas Storage Report

EIA - Weekly Natural Gas Storage Report

Working gas in storage was 3,160 Bcf as of Friday, January 6, 2017, according to EIA estimates. This represents a net decline of 151 Bcf from the previous week. Stocks were 363 Bcf less than last year at this time and 4 Bcf below the five-year average of 3,164 Bcf. At 3,160 Bcf, total working gas is within 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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