Webinar Analysts: Summer Weather, Inflation and Freeport Freefall
During the June Constellation monthly Energy Market Intelligence webinar, the commodities management group (CMG) team covered the summer forecast, their latest on economic and inflation risks, gas and power market fundamentals, and pricing trends.
Chief Meteorologist, Dave Ryan spoke to the warm June we’ve had so far. June has already been 280-290 PWCDD’s above normal, placing it in the Top 3 hottest on record. If the heat spikes continue, it may be a very hot July and August throughout most of the U.S. Due to the combination of La Nina and warmer than normal water temperatures, forecasters expect to have another active tropical season, with 20 named storms, hurricanes and major hurricanes.
Chief Economist Ed Fortunato said this is a supply driven inflation. The Fed raised interest rates again, this time ¾ of a point on Wednesday. The Fed controls demand, and demand tends to decrease when interest rates are raised, and conversely demand is increased when rates are lowered. Recession fears are on the rise. Leading indicators of a recession are car and truck sales, consumer confidence, home sales, and unemployment. New home sales for May are expected to decline 3-4%, consumer confidence is low, and new vehicle sales are lagging. On the other hand, unemployment remains low and there are seven million jobs that are not filled at this time. There are some signs of layoffs occurring in some sectors with technology companies foremost.
Production and Storage
Wednesday, June 8th, the Freeport LNG export terminal suffered a fire and shut down operations. Initial reports said the terminal would be repaired in three weeks, but Freeport now says the terminal will be down for at least 90 days and will not likely resume full operations until year’s end. Two billion cubic feet (Bcf) of gas per day is affected, amounting to 2.5% of total U.S. production, currently at 95 Bcf per day. With the terminal out of commission for several months, we have 2 BCF more a day of gas to use in the U.S.
Natural gas production continues to inch upward and is currently at 95 Bcf per day. The weather forecast is hot and this is expected to drive demand for natural gas fired electric power in key consuming markets.
The CMG team also talked about The North American Energy Reliability Council (NERC), which published a list of regions where rolling black outs are a risk due to the hot summer: ERCOT, MISO, CAISO and NYISO. CAISO has a hydropower shortage due to the drought, ERCOT has already seen new record loads, but wind generation has been strong. MISO may not have enough capacity if there are several outages over the next few months and the NYISO region is at risk of falling capacity reserves with the hot summer.
The CMG team concluded the webinar by discussing different scenarios and purchasing strategies around the possible scenarios of weather, production, storage, exports, and the economy.
Please join us on Wednesday, July 20, at 2 p.m. ET, where we provide updates on factors affecting energy prices, such as weather, gas storage and production, and domestic and global economic conditions.
Register by visiting www.constellation.com/marketintelwebinar.