Ask the Experts: The Impact of LNG Cancellations on Gas Supply, Storage Inventories3 min read
In our monthly Energy Market Intel Webinar series, we offer our customers the opportunity to submit questions to learn more about the energy market trends that may affect their future contracting decisions, such as weather, gas storage and production, and domestic and global economic conditions. Most recently, customers requested further information on natural gas storage and renewable portfolio standards.
Constellation’s team of market experts addresses them here:
What is peak storage capacity?
Peak capacity for natural gas storage is not an exact or affirmed number. The Oak Ridge National Laboratory in its 2016 “U.S. Natural Gas Storage Capacity and Utilization Outlook” study estimates total U.S. storage to be 5 Tcf. However, there is a locational difference between various storage fields. Oak Ridge Labs is including all storage in the market areas where storage is heavily drawn in the winter as well as more upstream (more Gulf Coast) salt-cavern storage that plays a much smaller role in gas delivered during the winter in northern regions. The maximum storage number for our purposes is likely closer to 4.3 or 4.4 Tcf, taking into account the locations where storage matters most relative to winter draws.
Do you think that the liquefied natural gas (LNG) cancellations will ultimately lead to higher surplus?
LNG cancellations are a major factor in the current supply/demand balance and are having a material impact on that balance. Exports of LNG are off by 6 Bcf per day from the beginning of the year (9.5 Bcf per day) and are expected to hang around 4 Bcf per day through September. In the fourth quarter, LNG exports are expected to begin to move up and reach as much as 9 Bcf per day by the end of December. Much depends on winter temperatures in the European Union and Asia, along with economic recovery relative to COVID-19 in that outlook. Nonetheless, the collapse of LNG exports through the second and third quarter of this year has contributed greatly to the surplus of gas in the United States.
Any idea if current renewable portfolio standard (RPS) levels will be grandfathered in MA? (like MD last year)
The issue of grandfathering only comes into play when there is legislation to increase renewable portfolio standard (RPS) percentages. The language for each bill is different so there’s no way to predict if they will include “grandfathering”. That said, we as well as other retail suppliers always lobby to include some form of it to avoid having to pass-through any unforeseen increases to customers who have locked in RPS/contracts.
There is a small change proposed in Class 2 requirements currently pending and that does not include grandfathering, but historically Massachusetts has been reasonable with grandfathering (most recently with the Clean Peak Standard and the Clean Energy Standard – Expansion).
Is there a direct correlation to the REC pricing in states with RPS requirements and the retail prices that a corporate buyer might see when going out to purchase un-bundled RECS for their corporate commitments?
The answer is a little nuanced. For class 1 renewable energy certificates (RECs), say in PJM, they are all interchangeable so they trade on the market and a Maryland REC can be bought and used for New Jersey compliance, but each state’s solar RECs (if applicable) can only be used in their sourced states. And in the secondary market, if there’s a corporate buyer trying to source RECs, they will be competing in the same market as suppliers trying to shore up RECs for their own compliance so there will be a correlation between regional REC prices and what an independent buyer is seeing for prices.
Get access to more insights on the latest weather and market factors impacting your energy bill by attending our next Energy Market Intel Webinar on Sept. 23, 2020, by visiting www.constellation.com/marketintelwebinar.