WEATHER: 6-10 DAY AND 8-14 DAY OUTLOOK
The intense heat we have seen in the South and up through the Plains States will ease up in the next 10-16 days, with more normal temperatures forecast. This cooler forecast may account for the eleven-cent drop in prompt month gas pricing on the Henry Hub NYMEX over the weekend.
BAKER HUGHES RIG COUNT FOR THE LAST FIVE YEARS
Keep an eye on the Natural Gas rig counts. We have dropped from 166 rigs down to 114 this last week. This is the lowest we have been since just before the Russian invasion of Ukraine.
Last winter, we got lucky as we had a very mild winter. If we have a typical or colder-than-average winter, those idle wells will take a bit to spin up again.
EIA: WEEKLY NATURAL GAS STORAGE REPORT
Due to high demand, we have had weak injections this summer. We were 25.3% above last year’s storage level a month ago and 14.6% over the five-year average. We are 18.4% above last year and 8.7% above the five-year. If we get below the five-year average, gas prices will rise sharply.
AD HUB ELECTRICITY VS. HENRY HUB NAURAL GAS PRICING.
Electricity prices have begun to flatten out in the BGE hub around Maryland but have dipped a bit in the AD Hub. Take advantage now, as our surplus of natural gas is fast disappearing.
We will likely see Peak demand Days early this week, and savvy electricity shoppers will prepare to curtail their usage to lower their demand and cap tags.
FORWARD POWER PRICING
Forward power pricing is a financial mechanism used in the energy industry, particularly in the electricity market. It involves the pricing and trading 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:
- 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.
- 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.
- 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.
- 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.
- 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.
Peak Demand Warning Issued Across For Today and Tomorrow!
Based on current PJM load and weather forecasts, an annual peak day between 4 PM and 6 PM EDT will likely be established this afternoon, Tuesday, September 5th.
There is a High Threat of setting one of the five highest peak demand days today, with forecasted peak demand predicted to be between 148,079 MW and 151,348 MW.
This load forecast represents a credible threat of setting one of the peaks for the 2023 season. Tomorrow and Thursday also have the potential to set peaks for the 2023 season.
