Is Winter Coming, Election Wrap, and the Pace of Economic Recovery3 min read
Constellation hosted our most recent monthly Energy Market Intel Webinar on November 18th. During the broadcast, Constellation’s team of market experts discussed the outlook for near-term and winter weather, expected impacts of the 2020 Election, the U.S. economic outlook, natural gas fundamentals, and power and gas pricing.
Dave Ryan, Constellation’s chief meteorologist, provided an update on the winter forecast. November has come in very warm across much of the country, and the atmospheric solution for December features more of the same through the end of the year. The La Niña condition that is driving warmer-than-normal outcomes continues to present itself and is not allowing cold Arctic air to enter the Lower 48 states. As noted in our October webinar, a weak La Niña generally results in a warmer-than-normal winter, but there are exceptions. Ryan noted that, if high pressure begins to develop over Greenland, this could shift the pattern in the atmosphere and allow colder air to move into the U.S.
Election 2020 Recap
David Gilbert, Vice President, Federal Government Affairs at Exelon provided a synopsis of Presidential and Congressional election results, noting that pollsters missed the mark in most instances. The Democrats’ capture of the White House was muted somewhat by surprising, and not insignificant, Republican gains in the House of Representatives. The GOP has lost one seat in the Senate and, importantly, both Georgia seats are up for a special runoff election on January 5th. This election will determine which party controls the Senate and will be a major factor in how policies and programs are implemented, or not, in 2021 and beyond. The outlook for energy includes emphasis on renewables, likely re-entry to the Paris Agreement, and a more aggressive regulatory atmosphere in the oil and gas industries that could add costs to production. Tax treatment offered to the renewable energy industry may become more favorable and could direct investment to battery storage, connectivity for electric vehicles, and a general emphasis on accelerating electrification in transport and other economic sectors.
Update on Economic Recovery
Exelon chief economist, Ed Fortunato, commented on the forecast for 4th quarter economic growth, the impacts of increasing COVID-19 cases, and recent unemployment figures. The U.S. GDP is now estimated to grow just +3.5% this quarter, a lower than previously expected outcome. With a resurgence of COVID-19 and several states announcing various slowdowns to their economies, employment is stalling. Additionally, many of the stimulus dollars appropriated earlier this year to support unemployment benefits, loans and grants to small businesses, and payroll protection, are scheduled to run out in December. Fortunato explained that a large component of the slowing recovery is lack of continued stimulus that would bridge the economy through this latest resurgence until recently announced vaccines work their way through distribution in the first and second quarters of 2021. The unemployment rate is currently 6.8%, the stock market just reached new highs, sales of existing homes are surging, and auto sales are climbing, so the economy is expanding. However, there are many trouble spots and the restaurant, travel, and entertainment industries are still struggling mightily.
Members of the Commodities Management Group (CMG) reviewed natural gas supply and demand fundamentals, storage inventories, production, exports and pricing action. Natural gas production had been relatively flat at near 87 Bcf/d from July-October but has ticked up to 89 Bcf/d in the second half of November. The natural gas-directed rig count hit an all-time low earlier this year with 69 active rigs and has not recovered with the current count at just 72 units. The number of oil-directed rigs has improved somewhat from all-time lows earlier this year but is still down more than -60% year-over-year. The U.S. Energy Information Administration (EIA) revised its 2021 natural gas production forecast upward, having previously shown a decline to 82 Bcf/d by April 2021 and now showing a flat 87 Bcf/d through the second quarter of next year. Natural gas storage inventories begin the winter season at high levels and the first three weeks of November saw a build in inventory, not a reduction. Exports of LNG have reached record levels and are currently at 10.5 Bcf/d. Exports are a plank of support to natural gas prices as the price spreads in the Asian and European markets, coupled with coming winter, have boosted demand for LNG. Exports to Mexico continue to outperform last year, and new connectivity in the Mexican distribution system that was completed earlier this year provides an improved outlook for U.S. exports. Natural gas and power prices moved up from July-October but have softened considerably on a prompt-month and winter-strip basis with the November warm-up. Prices in the 2022-2025 timeframe continue to be relatively low historically and certainly on an inflation-adjusted basis.
Please join us for our next Energy Market Intel Webinar on Wednesday, December 16th at 2 p.m. Eastern Time, when the team will provide its latest insights into winter weather, economic indicators, COVID-19 vaccine development, changes in the post-election policy landscape, and the usual key market fundamentals.