Webinar Analysts: How the Summer of 2024 is Shaping the Energy Landscape
During the July Constellation monthly Energy Market Intelligence Webinar, Constellation’s Commodities Management Group (CMG) provided comprehensive coverage of various significant factors affecting the energy landscape. These included insights into the summer hurricane season, natural gas consumption for cooling demand, and capacity markets.
Weather Report
During the webinar, the team discussed how the summer of 2024 was on track to be the hottest on record, with above-normal temperatures across most of the U.S. This has led to strong power demand from air conditioning, which is expected to continue throughout the remainder of the high-temperature months, especially in the East and South. Additionally, the forecasted extreme heat is expected to lead to a market-anticipated shift in the gas balance.
The tropical storm outlook was covered, and the experts expect the season to be very active due to warm water temperatures and favorable atmospheric conditions. The webinar covered the varying impacts hurricanes can have on the energy industry, depending on the path, intensity and duration of the storm, as well as the effects on infrastructure, personnel and the power grid. Hurricane Beryl was used as an example to illustrate how a storm can disrupt LNG production and demand in the Gulf Coast.
All Things Economic
The energy transition and economic factors that drive the shift towards non-carbon resources were also topics of discussion. The challenges and opportunities associated with replacing reliable generation sources with more variable alternatives, such as wind, solar and batteries, were highlighted. Additionally, the webinar covered the role of metals and minerals in the energy transition and how they affect the cost and supply of energy. Interest rate projections and potential Fed rate cuts to support the economy were also explored.
Natural Gas Fundamentals
Constellation’s energy market experts analyzed the factors influencing natural gas prices and balances for the summer of 2024. They highlighted that prices peaked in June due to tight gas balances but later declined as a result of increased production, reduced LNG exports and the impacts from Hurricane Beryl. In terms of natural gas storage, levels were reported to be above the five-year average and the previous year’s levels, indicating a sufficient supply. However, storage surplus levels are expected to decline as the summer progresses. The team forecasts that storage will end the injection season at around 3,900 Bcf, which is considered adequate to meet the upcoming winter demands.
Power Burns
The discussion on the natural gas market during the summer highlighted the impact of power burns, or natural gas used for power generation, due to heat, with an average of 47 Bcf per day in the week ending July 10. This figure not only surpassed the previous week’s numbers but also the rates from the same period last year. Expectations are set for these power burns to remain strong throughout the summer, supported by the weather outlook that predicts continued hot conditions and high demand for air conditioning. Projections estimate that power burns could average around 47 to 48 Bcf per day in July and August, potentially exceeding levels seen in previous summers.
Capacity Markets
The discussion then moved to capacity markets in PJM and New England, designed to ensure the long-term power system reliability by procuring sufficient resources to meet peak demand. PJM and New England have different capacity market designs, including variations in the forward periods, auction schedules, resource accreditation and pricing rules.
For the PJM capacity market, updates were provided on the current base residual auction for the 2025-2026 delivery year. This auction is notable because it is the first to implement the effective load carrying capability (ELCC) method, which values resources based on their availability and performance during peak periods. Challenges facing the PJM capacity market were also addressed, including FERC’s rejection of the offer cap and capacity performance reforms, the court’s reversal of the DPL South price reduction, and the potential for volatility and uncertainty in auction results.
Regarding New England’s capacity market, the team discussed significant changes planned for the 2028-2029 delivery year. These changes include transitioning from a three-year forward and annual auction to a seasonal and prompt year auction, as well as revising the resource accreditation process based on fuel security and deliverability. The goal is to improve efficiency, reliability, transparency and cost savings for customers. However, potential implications for market participants were noted, such as uncertainty regarding future capacity prices, the risk of stranded assets, and the need for more flexible and responsive resources.
Market Trends and Temperature
The team concluded the webinar by looking at forward power charts, the “Market Temperature,” and other factors affecting the energy market.
We invite you to join us for our next Energy Market Intel Webinar on Wednesday, September 11 at 2 pm ET. Constellation energy experts will offer detailed and timely updates on factors affecting energy landscape such as weather, natural gas storage and production, and domestic and global economic conditions. Register by visiting www.constellation.com/marketintelwebinar.
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