Infinity Insights - Volume 14, Issue 11
MONTHLY UPDATE - DECEMBER 2024 EDITION
NATURAL GAS
NYMEX Natural Gas has settled around the $3.20 range.
The most recent EIA Natural Gas Inventory Report for week ending 12/6 showed a net withdraw of 190 Bcf. Current inventory sits at 3,937 Bcf, working gas in underground storage is essentially full as we head into the coldest months. Inventories sit at 2% and 5% above the year-ago mark and 5-year average, respectively. The latest withdraw number came in stronger than anticipated with higher than usual heating demand. The next Inventory Report is scheduled for 12/19 where we expect a more “in-line” withdraw for this time of year with weather returning to normal on a population weighted basis.
EIA’s Short-Term Energy Outlook forecasts US inventory of natural gas will remain above the 5-yr average over the heating season (November thru March) but regressing to only 2% above the 5-yr average by the end of March. EIA expects natural gas pricing to firm through the heating season as inventories fall. If this scenario plays out we can expect an average of $3.40/MMBtu natural gas for the balance of the heating season.
Spot month natural gas has support at $2.90 with resistance at $3.50.
Calendar year 2025 finds support at $2.70 with resistance at $4.10. Calendar year 2026 has support at $3.33 with resistance at $4.37. Calendar year 2027 has support at $3.13 with resistance at $4.58, an increase across the board versus prior month.
Global natural gas prices ($/MMBtu):
Henry Hub (USA): $3.28↑
NBP (UK): $14.47↓
TTF (Dutch) $13.11↓
JKM (Japan/Korea) $14.88↑
The latest global weather forecasts show most of Europe is expected to have a mild winter with the exception of Scandinavia which could have some cold spells. Asia is expecting a slightly colder than normal winter. The most recent global natural gas prices are indicative of the most recent weather forecasts, Asian (Japanese/Korean) natural gas has ticked up, while European (UK/Dutch) natural gas has softened slightly since our last publication.
Natural Gas Production and Automation
Although natural gas pricing may seem volatile, there has been a major shift in natural gas production and in turn pricing has stabilized. Natural gas wells have been a huge benefactor of both drone technology and automation. Drone technology is mostly used for surveying, maintenance and compliance. Operators are able to deploy drones and get real-time reports on rig and pipeline conditions. Before drone technology these types of surveys would take time and dedicated resources.
Automation has enhanced well production through dynamic throttling. This gives operators the ability to increase or curtail production based on well or market conditions. Through automation, operating failures can be avoided, corrected and prevent further damage by utilizing sensors and equipment that will make needed adjustments or simply notify the operator of unusual activity.
Operators are able to increase or curtail production immediately based on market conditions. For instance, if weather forecasts show a major shift, in this case let’s say an approaching cold front (bullish), the operator can expect greater demand for natural gas and can adjust production accordingly. In the past, if cold weather was forecasted we would expect to see natural gas prices rise and only see pricing relief once the cold snap had passed. With today’s technology if a cold forecast is published prices do elevate, but with the ability to immediately increase production, we are seeing short-lived pricing spikes, followed by high production and then pricing normalization. We expect this trend to grow as the technology is quickly adopted. As a result of dynamic throttling we are seeing stronger pricing equilibrium.
NOAA’s forecasts are showing above normal temperatures for both short and long-term forecasts except for the east coast which will have colder than normal conditions in the near-term. Current drought monitor shows few regions with some drought, mainly in the High Plains, Southwest and New England. These conditions are expected to persist with little precipitation forecasted in these areas.
MARKET NEWS
The US economy remains strong. 12-month trailing November CPI ticked up to 2.7%, a slight increase from prior 3 month readings. The unemployment rate ticked up from 4.1% in October to 4.2% in November, still in a healthy range. The Fed will begin meeting on Tuesday and is expected to cut rates 25 bps on Wednesday. So far equities and inflation have reacted well with recent Fed cuts which began in September. The SP500 is up 28% year-to-date.
Look Back on Localized Marginal Pricing (LMP) 2023 vs. 2024
Locational Marginal Pricing or LMP is the real-time pricing for power or spot price in a specific geographical location. In this section we will take a look at 2024 year-to-date pricing versus calendar year 2023. We will focus on PJM, the nation’s largest regional transmission organization (RTO) - covering 13 states and the District of Columbia, NYISO – covering New York, and ERCOT – covering Texas.
PJM
LMP pricing was relatively flat during the shoulder months of spring and fall. Prices were elevated through the summer and winter months due to high demand with extreme weather. In January the Midwest, Northwest and New England were all impacted by Winter Storm Gerri. High pricing June through August in PJM is attributed to a heatwave that dominated the area.
Through policy, PJM is in a unique position where thermal generation retirement is accelerating while there is not enough planned new generation to fill in the gap. We will need to see policy changes before we see pricing relief in this market.
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NYSO
January and December 2024 were both elevated year-over-year. January 2024 in NYISO pricing was elevated due to a combination of cold weather, generation outages, and expensive natural gas prices.
New York State had 1,109 HDD’s in January 2024 vs. 871 in January 2023, representing a 27% increase in heating demand. Fuel supply constraints, specifically, natural gas and oil, caused more generation outages than normal during this time of year. In addition, natural gas prices were elevated with January natural gas in New York settling at $13.20/MMBtu.
ERCOT
ERCOT summer LMP was far less expensive than summer 2023. ERCOT pricing fell year-over-year due to far less cooling needs, a 12% reduction in cooling degree days. Additionally, between August ’23 and August ’24 ERCOT added 3,300MW of solar capacity, a 26% increase year-over-year which is very well suited for the oppressively hot summers in Texas. ERCOT shattered all sorts of records this summer, including total demand, solar generation and battery deployment, all while maintaining relatively inexpensive real-time pricing.
IPP Connect Introduction
Our team at Infinity Power Partners is excited to share that our upgraded 2.0 client portal, now called "IPP Connect," is live!
Our new portal allows you to easily access all your energy contract details in one place. You can sort and filter your sites, as well as export your energy portfolio information at any time.
Features:
The home screen provides a snapshot of your contracted energy portfolio with IPP.
Click on your management company or ownership name (in blue) to view the full portfolio.
Sort the data by clicking any of the bolded headings above the contract details.
Use the global search bar or the yellow filter option to filter your portfolio.
To export portfolio details, click the red PDF button. (Note: It will only export the entries currently displayed. If you have more than 50 entries, select from the drop-down under 'Active Contracts' to view all entries.)
Your energy portfolio will display all active and future start contracts with IPP.
To view the ESIIDs/accounts, click the blue property/site name to see the associated ESIIDs/accounts for that contract. You can also export this information via PDF or CSV.
To return to the previous screen, click your management company/ownership name, 'Home', or 'Dashboard' at the top or left side of the screen.