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Energy Market Update: January 3, 2020

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In this week’s 2019-closeout Energy Market Update, Direct Energy Business Strategist Tim Bigler shares his outlook for 2020, including trends and patterns from across the country.


NYMEX Natural Gas

We’ve previously covered NYMEX natural gas futures strips on the Energy Market Update, noting that calendar (12 month) strips (at Henry Hub price) for 2021 through 2025 set new all-time lows as 2019 drew to a close. This trend has held, with one interesting exception: the calendar strip for 2021 has matched its all-time low, but has held above $2.41/MMBtu, which happens to also be the lowest price point reached by any subsequent calendar strip. In other words: with 2020 officially underway, all future year NYMEX natural gas calendar strips appear to be treating $2.41 as a potential price support. 


Western Energy Markets

Western U.S. power markets, by contrast, have seen rising prices over the past six months. Taking Q3 of 2020 as an example,California’s CAISO SP15, CAISO NP15, and Palo Verde in Arizona have seen ever-climbing peak futures prices over the last six months. There are several reasons for this, chief among them the continuing need for fossil fuels. Storage issues, pipeline issues, and the decommissioning of major coal facilities have all introduced a premium into fossil fuel markets, and renewable sources are not yet robust enough to make up the difference. As a result, the three regions mentioned have reached (or are on track to meet) one-year highs.


Regional Winners & Losers

Although NYMEX natural gas prices declined through 2019, not every region of the U.S. saw benefits. Texas’s ERCOT, for example, has seen elevated electricity prices due to low reserve margins across the grid during peak demand days. These increases abated somewhat thanks to the latter months of 2019 being off-peak, possibly with some help from favorable natural gas markets.

One region that is benefiting, however, is the Midwest - Chicago, specifically. Chicago Citygate basis prices for natural gas are among the lowest in the country, resulting in prices below $2.40/MMBtu for 2021, 2022, and 2023 strips. Moreover, electricity prices in PJM ComEd are among the lowest in the country, but they may be supported by coal prices, which are currently rising. The movement of coal prices may therefore be indicative of the future direction of electricity prices, as the benefits of affordable natural gas may already be priced into the market.


The Bottom Line

All told, most regions are seeing lower electricity prices thanks to cheap natural gas. Power prices in NYISO, PJM, New England, ComEd and even ERCOT have decreased just since November. CAISO is moving in the other direction, but that may only last as long as the region’s supply issues persist.

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Posted: January 03, 2020