Infinity Insights - Volume 14, Issue 3
MONTHLY UPDATE - MARCH 2024 EDITION
NATURAL GAS
NYMEX Natural Gas has settled to the $1.75 range with the most recent EIA Weekly Natural Gas Storage Report showing a net withdrawal of 9 Bcf week over week, essentially in-line with consensus estimate at 3 Bcf.
Two forces are impacting spot natural gas. Firstly, inventories are extremely high, further deviating from the 5yr band and 37% greater than the 5-yr average for this week.
Secondly, we’ve seen volatility and short-lived bumps in pricing as producers have cut production. Production cut announcements came from CNX, Chesapeake Energy, EQT Corporation and others.
Spot month natural gas has support at $1.60 with resistance at $2.50.
Calendar year 2024 finds support at $1.50 with resistance at $3.60. Calendar year 2025 has support at $3.00 with resistance at $4.30, slight increases versus prior month.
EIA’s Short-Term Energy Outlook (3/12) stated Henry Hub spot price is expected to remain below $2.00/MMBtu in 2Q2024 citing strong inventories and consistent production.
February 2024 ended with Henry Hub averaging $1.722/MMBtu, a record low when adjusted for inflation.
WEATHER
Short-term weather outlook presents a cooler than normal start to spring. This is not especially relevant at this time of the year when temperatures are mild.
As we look ahead to summer, NOAA is forecasting a hotter than usual June/July/August 2024.
It appears El Niño has peaked and we are transitioning to La Niña. The strength of these systems is measured by Pacific Ocean surface temperature. Entering La Niña will cause cooler deeper water to rise to the surface, resulting in cooler ocean surface temperatures. Surface temperatures peaked at 2° Celsius above normal and have dropped to 1.4° Celsius above normal. NOAA repots a 63% chance of a strong La Niña forming this summer, whereas last month chances were 55%.
Tropical Storm Risk hurricane season forecast remains unchanged, expecting 20 named storms, 9 hurricanes, and 4 major hurricanes. These are all above historical averages meaning we are expecting an active hurricane season. With El Niño’s early peak this season and a high likelihood of a strong La Niña we could see adjustments in forecasts as ocean temperatures decrease. We will continue updating our clients as forecasts are adjusted.
MARKET NEWS
New England Capacity Market Auction
Wednesday, 2/21 ISO New England reported results of its most recent capacity auction for 2027-2028 delivery. ISO reports sufficient generating capacity to meet ’27-’28 demand with 31.56 GW of capacity secured. Clearing price for the auction came in at $3.58/KW, a 38% increase versus ‘23 auction for ‘26/’27 delivery. The auction price increase is a strong indicator of a changing energy environment for the region.
Some highlights
• No coal generating plants cleared the auction
• The ISO’s first utility-scale offshore wind facility (Vineyard Wind 1) cleared
• ~8% capacity obligations were secured in demand-reducing resources which include traditional demand response and gained efficiencies
• 6% of capacity came in the form of energy storage
• 4% of capacity was cleared by solar and wind
ISO is seeking FERC approval to move the capacity auction to a prompt/seasonal model instead of an annual auction 3 years in advance of delivery. A prompt market would provide more accurate forecasts and mitigate risk resulting in less pricing volatility.
Qatar LNG Expansion
QatarEnergy announced plans to expand LNG production at North Field, the world’s largest natural gas field. The project is expected to come online by 2030 and will increase export capacity by 16MM tons to 99MM tons per year for Qatar. The expansion project comes as demand from Asia is skyrocketing and Russian natural gas is limited. Qatar has identified an opportunity in this market. For perspective, JKM (East Asia) is trading at $8.49/MMBtu with Henry Hub trading at less than $2.00/MMBtu.
Although this announcement is important, we believe the 16MM ton capacity expansion is only the beginning. Considering the massive reserve, if international prices hold, we expect the expansion to continue. The North Field expansion pales in comparison to US planned LNG export expansion. Venture Global’s CP2 terminal due to come online soon will have a 20MM ton capacity and Golden Pass expected online in 2025 will have a capacity of 16MM tons.
Small Modular Reactors
Small modular nuclear reactors or SMR’s are “small” nuclear reactors that are easily deployable. The concept gained attention when Bill Gates co-founded TerraPower, a nuclear reactor design company focused on next generation nuclear plants intended to fight climate change.
In December at COP29 in Dubai a 25-nation coalition pledged to triple nuclear power production by 2050. Globally, there are about 2,500 TWh of nuclear electricity produced annually. The global SMR pipeline capacity is 22 GW.
SMR have a few key advantages over traditional large nuclear power plants.
1. SMR’s utilize the latest nuclear technology, using a variety of different coolants including liquid metal, gas or molten salt, whereas large nuclear plants are limited to water coolant. Coolant can be a limiting factor for reactor deployment locations, requiring a local water source.
2. Lower plant capital costs are achieved by off-site manufacturing, mass production, and ability to utilize generic designs versus custom designs suited for location of a nuclear power plant.
3. SMR modules provide further safety by being manufactured in a factory with the nuclear fuel encased in the module, sealed, and shipped to the destination and operate with a nuclear core below grade. Upon fuel exhaustion, SMR’s will be returned to the manufacturing facility, refueled and redeployed. Additional safety features include “passive safety”. Passive safety is where the plant can run without human intervention, the plants will essentially safely run themselves while lowering overhead costs of labor.
4. Scalability of SMR’s is a huge benefit. It’s difficult to forecast where electric demand will grow – this poses a problem for traditional nuclear plants which can take 6 to 15 years to build. With SMR’s as demand grows another module can simply be added to the generating facility and meet demand.
TerraPower has announced plans to begin construction in June and bring its Natrium branded reactor online in 2030 in Kemmerer, Wyoming. At first the plant will serve to demonstrate the feasibility of SMR’s and upon completion and expansion will serve as a full-scale commercial plant.
Our take: An additional source of reliable, inexpensive, safe, domestically produced energy is great news. Domestic electric demand is only increasing. Deployment of SMR’s opens up new opportunities in various locations able to support growing industries such as data processing and crypto-mining. SMR’s have further benefits in that they can easily be deployed to areas devastated by natural disaster, quickly restoring electrical service.
GEOPOLITICS
Europe
The Russian Ukraine War continues. Ukraine has recently focused its offense on targeting Russian oil infrastructure. Ukraine has targeted 13 oil refineries using drones. Attacks appear to be successful with reports of fires and explosions at key oil refinery plants in Russia. Oil has ticked up slightly on these reports, with WTI in the low $80’s and Brent in the mid $80’s.