energy pricing & market intelligence q3
DESCRIPTION
With energy prices and market volatility easing throughout the latest quarter, it is tempting to let pricing become an afterthought and volatility merely a bad memory. However, now is the time to prepare your business for future price volatility. Join Ecova as we provide: Third quarter energy market intelligence highlights Some current and future rate cases across the country Budgetary risks to consider moving into the winter months Duration: 45 minutes with Q&A Hosts: Jonathan Lee, Manager, Energy Procurement and Advanced Analytics and Sheila Johnston, Manager, Energy and Sustainability Analytics, both with Ecova.TRANSCRIPT
Identify and Communicate Energy Price Volatility to Manage RiskEnergy Prices and Market Intelligence Q3 Update September 18, 2014
Presenters: Jonathan Lee, Senior Energy Market Intelligence Managerand Sheila Johnston, Manager, Energy and Sustainability Analytics
Electric and natural gas prices have retreated from highs during the polar vortex, but more volatility could be on the way.
− As the nation increases its reliance on natural gas-fired electric generation, wholesale gas prices will play an even bigger role in the direction of electric prices.
Fundamental Drivers – Bulls and Bears
• Fall/Winter Weather: A potentially chilly winter could boost natural gas demand and severely deplete already below-average storage levels.
Natural Gas Production, Demand, Storage: Production continues to grow at a record pace, but demand for the fuel is also steadily on the rise. Forward electric and natural gas prices remain somewhat elevated as market participants worry over gas storage heading into the winter of 2014/2015.
• Longer-term drivers: Northeast pipeline constraints, new EPA regulations, coal-plant retirements, and LNG exports will all have a role to play in price volatility.
Budgetary Risks to Consider: With the winter months quickly approaching, what regions are most at risk and what steps can you take to mitigate impacts to your budget.
ENERGY MARKET INTELLIGENCE
MARKET FUNDAMENTALS 17 September 2014
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
Storage
Production
Demand
Electric Power Sector
Weather
Tropical Storms
LNG
Economy
The summer of 2014 was mostly in line with projections. The West was hot and dry, while the Central U.S. and Northeast experienced milder temperatures.
Below-Average Cooling Degree Days Weighed on Summer
Power Sector Demand
SUMMER 2014 RECAPNOAA, AccuWeather; EIA: September 2014
FALL TEMPERATURE OUTLOOK
A cooler central region is likely to persist until mid-Fall, while the is East projected to be above-normal for much of the time.
NOAA, AccuWeather: September 2014
Fall Outlook
EARLY WINTER WEATHER OUTLOOKNOAA, Farmers’ Almanac: September 2014
Another Bitter Cold Winter Ahead??
Potential El Niño patterns forming for late 2014 could help CA hydro next year, and keep the East drier and warmer this winter.
El Niño patterns, as shown below, primarily reach maximums during Dec-Feb and typically persist for 9-12 months.
EL NIÑO WINTER IMPACTNHC/NOAA; AccuWeather: September 2014
Drought conditions are projected to improve for much of Texas and the South through the remainder of the year.
However, much of California is expected to maintain equal chances for normal precipitation, so the drought conditions there are likely to persist into next year.
DROUGHT OUTLOOK – DRY WESTNOAA/CPC: 26 August 2014
HURRICANE OUTLOOK ~ AVG YR, LOWER IMPACT FROM GULF
Atlantic Hurricane Outlook
June 01 - Nov 30
Average Values
(1981-2010)
Record Values
2014 Projected Values
2014 Actual Values To-Date
Mild (Named Tropical Storms)
12 27 (2005)9 (CSU); 8-13 (NOAA 70%
confidence)1
Moderate (Hurricane Categories 1-2)
6 15 (2005) 3 (CSU); 3-6 (NOAA) 3
Intense (Hurricane Categories 3-5)
38 (1950); 7 in (2005)
1 (CSU); 1-2 (NOAA) 1
NHC/NOAA; Colorado State University: September 2014
Short-Term Trend: Market remains focused on the ability to replenishing record-low storage levels by November
NATURAL GAS STORAGE
STORAGE REPLENISHMENT
8 weeks left for injection season
Current 86 Bcf refill rate is exceeding previous rates, but...
Market more comfortable with getting to 3.6 Tcf, requiring 99 Bcf/week
EIA projects working gas stocks to reach 3,477 Bcf at end of October, equates to injections of:
676 Bcf from Sep 12th to October 31st
85 Bcf/week
Supported by 6.76% Yr/Yr increase of dry gas production
SUPPLY AND DEMAND BALANCEEIA: September 2014
Post-winter gas production is outpacing
demand, which has led to a strong injection season.
Consumption expected to decline in 2015, especially in the Residential/Commercial sector.
RECORD: Gas production exceeded 15 bcf/day through July 2014
Accounts for almost 40% of U.S. shale gas production
On track to be enough production to equal the demand in Pennsylvania, West Virginia, New York, New Jersey, Delaware, Maryland, and Virginia
MARCELLUS GAS PRODUCTION REGION– Exceeded 15 bcf/d in July
Drilling productivity has increased from 0.3 mcf/d in January 2012 to an estimated 5.0 mcf/d in August 2014.
UTICA PRODUCTION SOARINGEIA: 12 August 2014
Increased from 155 mcf/d in January 2012 to an estimated 1.3 bcf/d in September 2014.
North Dakota seeks to cut gas flaring to 10% of production by 2020.
Over the last 4 years, about a third of natural gas from oil wells has been flared (364 mcf/day).
Difficulties include construction of large-volume gas gathering capacity and economics of rapidly declining oil and gas production after first year of operation.
NORTH DAKOTA NATURAL GASEIA: 28 August 2014
NATURAL GAS FORWARD CURVE(NYMEX) – 16 September 2014
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb
-15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep
-15
Oct
-15
Nov
-15
Dec
-15
Jan-
16
Feb
-16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Nov
-16
Dec
-16
Jan-
17
Feb
-17
Mar
-17
Apr
-17
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
4-Aug
18-Aug
2-Sep
16-Sep
$/M
MB
tu
NATURAL GAS$MMBtu (12-Month Strip) – 16 September 2014 – Short Term Trading Channel
NEW YORK/NEW ENGLAND – ANOTHER VOLATILE WINTER AHEAD?− Market-based electric rates are susceptible to spikes in the winter period as power sector
demand competes with residential/commercial heating demand for natural gas supply.
PJM ISO – VOLATILTY ISN’T ISOLATED TO NEW YORK/NEW ENGLAND
− During the Polar Vortex in early 2014, market-based electric rates also saw significant upward pressure in Maryland, New Jersey, and Pennsylvania.
TEXAS – OPERATING RESERVE DEMAND CURVE (ORDC)− On June 1, 2014, ERCOT introduced a new charge that aims to achieve more efficient pricing
by tying a price adder to the reserves available in the system. The adder is called the On-Line Reserve Price Adder and is included in 15-minute Real Time Settlement Point Prices.
CALIFORNIA – ELECTRIC PRICES ON THE RISE− Persistent drought conditions, increased reliance on natural gas and renewable energy
sources, and the permanent retirement of the San Onofre nuclear power plant continue to place upward pressure on electric prices in the state.
REGIONAL ELECTRIC HOT SPOTS:Fall/Winter 2014 Outlook
ELECTRIC WHOLESALE PRICESEcova: 12 September 2014
NEW YORK/NEW ENGLAND
Natural Gas Pipeline Constraints During High Demand Periods
Result in Market Volatility. Real Threat Heading into Winter
2014/2015.
NEW YORK$/MWh (ATC 12-Month Strip Zone Average)
NEW ENGLAND$/MWh (ATC 12-Month Strip Zone Average)
PJM ISO$/MWh (ATC 12-Month Strip Zone Average)
RECENT SIGNIFICANT BASED/BUNDLED CHANGES
Southern Company cost overruns for nuclear and coal fired plants
East Coast storm related damage and increased “hardening” of system– Replacement costs for existing and additional costs for “hardening” of system
Retirement of coal generation/replacement with new generation
SCE and SDG&E– Protracted rate case pushed several B/B rate changes and fuel rate changes in 2014
– Shut down of San Onofre Nuclear Generation Station (SONGS) – rate payer cost still to be determined
Prolonged Drought– New Natural Gas generation stations under construction to offset hydro supply
EIA PROJECTIONS – 2014 vs. 2013Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AverageAlaska and Hawaii 3% -1% 5% 1% 5% 7% 4% 5% 6% 2% 0% 0% 3%Pacific Contiguous 11% 5% 7% 3% 4% 0% -1% -1% 4% 1% -5% 1% 3%Mountain 5% 5% 4% 3% 4% 3% 2% 3% 2% 3% 2% 1% 3%West North Central 3% 7% 4% 4% 1% 2% 3% 3% 3% 3% 3% 3% 3%West South Central -1% -3% 2% 3% 1% 3% 2% 3% 3% 1% 2% 0% 1%East North Central 3% -1% 4% 4% 1% 2% 3% 2% 4% 2% 3% 3% 2%East South Central 2% -1% 7% 6% 5% 6% 8% 9% 8% 7% 7% 7% 6%New England 5% 6% 7% 3% 1% 5% 6% 6% 7% 7% 5% -2% 5%Middle Atlantic 11% 3% 13% 6% 3% 4% 4% 4% 3% 4% 7% 5% 6%South Atlantic 6% -1% 5% 5% 3% 3% 3% 3% 3% 3% 3% 3% 3%National Average 5% 2% 6% 4% 3% 4% 3% 4% 4% 4% 3% 2% 4%
Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AverageAlaska and Hawaii 12% 15% 15% 7% 4% 6% 9% 5% 17% 16% 13% 7% 10%Pacific Contiguous 12% 15% 15% 7% 5% 7% 8% 2% 14% 13% 10% 3% 9%Mountain 9% 12% 17% 17% 13% 13% 10% 11% 12% 11% 12% 8% 12%West North Central 8% 16% 36% 22% 7% -1% -2% 3% 4% 0% 12% 8% 9%West South Central 7% 5% 18% 18% 18% 6% 1% 1% 1% 0% 8% 10% 8%East North Central 2% 13% 35% 23% 17% 16% 17% 14% 15% 21% 19% 12% 17%East South Central 7% 9% 13% 14% 14% 7% 6% 7% 7% 8% 8% 7% 9%New England -2% 5% 10% 26% 6% 11% 13% 10% 10% 8% 15% 6% 10%Middle Atlantic 0% 9% 12% 8% 3% 10% 17% 18% 16% 17% 22% 18% 13%South Atlantic -2% 8% 12% 7% 5% 5% 7% 8% 8% 7% 13% 8% 7%National Average 5% 11% 18% 15% 9% 8% 9% 8% 10% 10% 13% 9% 10%
Electric EIA 2014 vs. 2013
Natural Gas EIA 2014 vs. 2013
Ratepayer responsibility for:
“20% by 2020” – higher costs associated with alternative fuel choices
Cleaning up or replacing coal generation
SONGS
Transmission line construction from Canada
Nuclear plant cost overruns
FUTURE BASE/BUNDLED CHANGES
EIA PROJECTIONS – 2015 vs. 2014Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AverageAlaska and Hawaii 0% 0% -2% 0% -1% -1% -2% -3% -2% -3% -3% -3% -2%Pacific Contiguous 1% 3% 2% 3% 1% 4% 4% 3% 3% 2% 2% 2% 2%Mountain 1% 3% 2% 1% 2% 2% 2% 2% 2% 2% 2% 2% 2%West North Central 2% 3% 1% 2% 2% 1% 1% 1% 1% 2% 2% 2% 2%West South Central 0% 1% -3% -3% -3% -3% -3% -2% -2% -1% -1% -1% -2%East North Central 2% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%East South Central 5% 4% 0% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%New England 2% -5% -5% 0% 1% -2% -1% 0% 0% 1% 0% 1% -1%Middle Atlantic 3% -2% 0% 0% 0% 0% 0% 0% 0% 2% 2% 2% 0%South Atlantic 0% 0% 1% 2% 2% 1% 1% 1% 1% 2% 1% 2% 1%National Average 2% 1% 0% 1% 1% 0% 0% 0% 0% 1% 1% 1% 1%
Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec AverageAlaska and Hawaii 7% 4% -4% -2% -4% -4% -1% 0% 1% 2% 2% 1% 0%Pacific Contiguous 4% 1% -8% -5% -8% -8% -3% 0% 1% 2% 2% 1% -2%Mountain 7% 3% -4% -11% -10% -11% -7% -3% -2% 0% 2% 3% -3%West North Central 6% -1% -15% -9% -8% -7% -4% -2% -1% 2% 3% 3% -3%West South Central 7% 6% -2% -9% -14% -11% -4% 1% 3% 4% 2% 1% -1%East North Central 13% 8% -5% -4% -9% -7% -5% -3% -2% 1% 2% 3% -1%East South Central 8% 8% 9% 1% -8% -7% -4% -2% -2% 1% 2% 2% 1%New England 7% 3% -4% -13% -8% -6% -3% -1% 1% 2% 2% 3% -2%Middle Atlantic 15% 5% 7% 6% 5% -1% 0% -1% 0% 1% 2% 2% 3%South Atlantic 15% 8% 9% 2% -1% -3% -2% -2% 0% 0% 1% 2% 2%National Average 9% 4% -2% -4% -7% -6% -3% -1% 0% 2% 2% 2% 0%
Electric EIA 2015 vs. 2014
Natural Gas EIA 2015 vs. 2014
E: +4%NG: -21%
E: -1%NG: -15%
E: -3%NG: +17%
E: -1%NG: +17%
E: +1%NG: +11%
E: +2%NG: +10%
E: -1%NG: +20%
Regional Energy Changes Attributed to Weather
POLAR VORTEX
NATURAL GAS AND WHOLESALE ELECTRICITY COULD EXPERIENCE ANOTHER VOLATILE WINTER
Market volatility will continue for the foreseeable future as the nation relies more on gas-fired power plants to generate electricity.
ENOUGH GAS IN STORAGE TO MEET WINTER DEMAND? With end of injection season supplies expected to be at an eight-year low, market participants
are concerned heading into the winter of 2014/2015.
REGIONAL HOT SPOTS: WHAT CAN YOU DO NOW? NEW YORK/NEW ENGLAND: Extreme winter volatility will likely continue until new pipeline
capacity comes online. Prepare well in advance by monitoring the market for buying opportunities.
PJM: Another frigid winter could result in another volatile winter, which could place significant upward pressure on electric and gas prices. Look to limit potential risk to budget.
TEXAS: New charge (ORDC) will potentially be seen on customer bills after June 1, 2014 for customers on market-based rate. Consider a fixed rate supply option to reduce upside risk.
CALIFORNIA: Increased reliance on natural gas and renewable energy sources for electric generation will continue to place upward pressure on prices. Traditional shoulder seasons may offer decent buying opportunities.
MAJOR TAKEAWAYS
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INSIDE ENERGY & SUSTAINABILITY Make a List and Check it Twice to Prepare
your Buildings for the Holidays Ahead– October 8th at 11am Pacific
Q&A
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