TPI Market Snapshot header
<em>Market snapshot for Monday October 30 2023<em>

EIA: WEEKLY NATURAL GAS STORAGE

The last two storage reports have shown a more robust injection than the five-year average, which is helping to keep the price of Natural Gas lower as mild weather has kept heat demand down. Projections of a mild winter due to a strong El Nino are also holding back gas prices.

Our gas surplus has significantly shrunk this summer, mainly due to high cooling demand and higher exports. Even though production numbers have stayed steady at 102 Bcf/d, this last month, we averaged 2.4 Bcf/d in LNG exports. If we start to see higher demand, we could see our surplus disappear faster than it has in recent weeks.

Electricity: FORWARD POWER PRICES

The lack of natural gas demand has also affected the electricity market, with the BGE and AD Hubs seeing sharper downturns in 2024 compared to future years. The PJM AD HUB dropped almost $2.00 / MWh over the last two weeks.

PJM BGE FORWARD POWER PRICES

PJM ADHUB FORWARD POWER PRICES

Forward power pricing is a financial mechanism used in the energy industry, particularly in the electricity market. It involves the pricing and trading of electricity for future delivery at a predetermined price. This mechanism allows electricity producers, consumers, and traders to hedge against price fluctuations in the electricity market and manage their risk exposure.

Here’s how forward power pricing generally works:

  1. Agreement: Parties agree to buy or sell a certain amount of electricity at a specified price for delivery at a future date. This agreement is known as a forward contract.
  2. Price Determination: The forward price is typically determined based on various factors, including supply and demand expectations, fuel prices, weather forecasts, and market conditions. It is negotiated between the buyer and the seller.
  3. Hedging: Electricity producers and consumers can use forward contracts to hedge against price volatility. For example, a power plant may enter into a forward contract to sell electricity at a fixed price, ensuring a stable revenue stream regardless of market price fluctuations. Conversely, a large electricity consumer, such as an industrial facility, may enter into a forward contract to buy electricity at a fixed price to manage budgetary risks.
  4. Market Liquidity: Forward power markets vary in terms of liquidity. Some regions have active and liquid needs where participants can quickly enter and exit positions. In other areas, forward markets may be less developed or less liquid, making it more challenging to find counterparties for trading.
  5. Delivery and Settlement: When the contract matures, the electricity is physically delivered to the buyer, or the financial settlement is made based on the agreed-upon price. Settlement can be in cash, where the difference between the contract and market prices is paid, or through physical delivery, where the actual electricity is transmitted to the buyer.

Forward power pricing is essential for managing risk and ensuring a stable electricity supply in deregulated or partially deregulated electricity markets. It allows market participants to make informed decisions about their future energy costs and can contribute to price stability in the electricity market. However, it also carries risks, as market conditions may change, leading to a mismatch between the contracted and market prices at the time of delivery or settlement.

RIG COUNT

After dropping precipitously in late summer, the Natural Gas rig count has leveled off to around 120 dry gas wells; this is still almost 40 rigs below this time last year.

WEATHER FORECAST: 6-10 DAY AND 8-14 DAY OUTLOOK

October 30 to November 5: Expect a cold spell with rain and snow sweeping across the United States this week. High temperatures will range from the 20s to 40s in the northern US and from the 40s to 60s in the southern US, with some areas experiencing locally warmer temperatures in the 70s to 80s.

Temperatures are set to warm up to near or above normal levels across much of the country from Friday to Sunday. Highs will be in the 40s to 60s in the northern US and in the 60s to 80s in the southern US, except for some cooler spots in the 30s near the Canadian border.

Regarding energy demand, expect high national demand through Thursday, followed by a decrease to low levels.

NYMEX 12-MONTH ROLLING STRIP

ALL ABOUT THE NYMEX TWELVE-MONTH STRIP 

  • The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
  • A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
  • The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
  • The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
  • The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
  • The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.