June Market Intel Webinar Recap

Article by Constellation

During Constellation’s June Energy Market Intel Webinar, principals from our Commodities Management Group (CMG) covered fundamental key drivers of power and gas markets as the summer air-conditioning season commences. Here were the key takeaways from this month’s webinar:

The month of May of 2018 was the warmest on record, and June is proving to be one of the top three warmest as well.  Year-to-date natural gas demand for electric power generation is up 3.2 BCF per day, which is a 14% increase.  While gas-fired power generation is surging, natural gas production has flattened through the second quarter after an impressive upward move from last summer.  Additionally, there is a significant and persistent natural gas storage deficit relative to the same period last year and the five-year average that is providing some bullish underpinnings to summer 2018 natural gas and power markets.

As we exit the second quarter, the natural gas market (and subsequently, the electric power market) has matriculated from a bearish near-term outlook that was dominated by the significant increase in year-over-year production, to a bullish near-term outlook characterized by strong power-generation demand coupled with a wide storage deficit and flattening production.  Summer temperatures in key urban markets will be the decisive factor in the coming thirty, sixty and ninety-day near-term market.  A hotter than normal summer is supportive of a higher gas-price scenario and of course a cooler than normal solution would likely see a softening in the market.

The National Oceanic and Atmospheric Administration’s (NOAA) forecast for July calls for above normal temps from east Texas through New England, but the Pacific Northwest will see the most persistent heat.

Regionally, we could see volatility in Texas and California this summer driven by tighter gas generation reserve margins in Texas after three large coal plants retired this winter, and restricted gas supply in Southern California due to pipeline maintenance.

Texas wind-power generation started the month of June averaging 4-6 GW in the afternoon hours, but on June 5^th there was a decided and persistent drop off in wind generation as it declined to less than 2 GW, about half of what had been forecast.  The result was a spike in real time prices to $3,100/MWh or $3.1/KWh for one 15-minute interval. The price for June 5^th averaged $169/MWh vs. $22/MWh the preceding and following days illustrating the ongoing risk as we approach peak cooling load in ERCOT later this summer.

Register today for our July Market Intel Webinar, taking place on July 18, 2018 at 2:00PM ET.