Weekly Energy Market Updates by Region

Issue week: October 7th, 2021  (Wk 40)

 

POWER MARKETS

 

WEST  Last Friday’s decision by SoCal Gas to increase pressure on line 4000 immediately will increase the amount of transport natural gas that will flow into the L.A. Basin through the Northern Zone by approximately 0.40 Bcf on a daily basis, roughly 12% of winter natural gas demand in Southern California. Consequently, fears of natural gas deficiencies during the upcoming winter have subsided, pushing down the SoCal Citygate forward price and, in turn, substantially lowering forward prices for Q1 and Q3 of 2022 this week.

ERCOT  Real-time 7x24 prices have gotten off to a strong start in October, this week averaging in the low $60s/MWh, around $25/MWh above last week, because of relatively strong loads for this time of year, extremely low wind output, 15,000 MW of generation on scheduled outage, and rising dispatch costs due to the ongoing rise in NG prices. This volatility is expected to continue over the shoulder months, although wind output should pick up for the next few days to provide temporary relief. In addition to generation outages, line outages during the shoulder months will likely yield some basis volatility. For the week, basis has averaged $0.50/MWh, $2.50/MWh, and $5.50/MWh across the Houston, South, and West Load Zones, respectively. In the forward market, prices also remain volatile, 7x24 CY22 trading in a $4/MWh swing for the week but ending relatively unchanged around $49/MWh. Strips for CY24 and beyond are up by more than $1/MWh.

EAST Prices are back up this week as lots of generation is out for planned maintenance, leaving a shorter supply stack available at this time of year. In PJM’s West Hub, Day Ahead prices are averaging $59/MWh, $16/MWh more than last week. Similarly, Real Time there is averaging $15/MWh higher at $62/MWh. ISO-NE’s Mass Hub is not showing as dramatic an increase, for both the Day Ahead and the Real Time averages are only $2/MWh greater than last week at $52/MWh and $49/MWh, respectively.

 

 

NDC MEANS NO MORE NATURAL GAS

More often than not these days, the motivation behind nations’ sustainability initiatives, such as electrification and decarbonization, is their desire to honor the 2015 Paris Agreement on climate change. From the Paris Agreement emerged the notion of the Nationally Determined Contribution (NDC), each participating country’s plan to reduce its carbon emissions. In the case of the U.S., fulfilling its NDC may very well entail tempering a pure cost/benefit dynamic in its energy policy for the sake of achieving actual long-term sustainability. Under that principle, the development of renewables clearly needs to be prioritized above the expansion of natural gas in the country’s energy landscape.

Because carbon-intensive infrastructure and equipment, such as gas-powered turbines, typically have useful lives lasting decades before decommissioning, continued reliance on natural gas simply carries too much “carbon lock-in,” which Ichiro Sato, Beth Elliott, and Clea Schumer of the Word Resources Institute described earlier this year as a sort of inherent commitment, due to the fossil fuel-intensive nature of a system, to perpetuating greenhouse gas emissions and thus delaying or even preventing “the transition to low-carbon alternatives.” True, electricity generated from every fuel source has some associated carbon lock-in by virtue of construction and operation of the associated facility. Nonetheless, as shown in the chart below from the World Resources Institute, the total impact of a new natural gas plant on carbon emissions is more than 10 times that of a new solar photovoltaic installation, more than 20 times that of a new hydroelectric plant, and more than 40 times that of a new offshore wind farm. To the extent that reaching its NDC targets is the goal, the choice for the U.S. is clear: renewables.

Decisions made under President Joseph Biden’s $2 trillion plan to invest in the country’s infrastructure regarding the type of energy infrastructure to be emphasized will surely implicate the ability of the U.S. to meet its commitments under the Paris Agreement. Only by opting against the cheaper option of natural gas—at both national and state levels—can the U.S. can make real strides toward accomplishing the goals of its NDC and phasing out fossil fuels altogether.