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Wholesale natural gas and power price volatility remains highly confined to the next few months. The short-term view of wholesale prices versus the long-term view is a tale of two stories. Short-term wholesale natural gas and power prices are being driven up and down by market supply and demand fundamentals:
- Very high natural gas storage levels due
- to two very warm winters back to back
- LNG (natural gas) exports to Europe and Asia are at maximum levels
- Natural gas daily demand as winter temperatures rise and fall
- U.S. natural gas producers have a new found ability to increase and decrease daily production to better met demand volatility
We’ve seen near term natural gas prices whiplashing higher and lower as market conditions change. While this winter is forecasted to be quite a bit colder than the past two winters, it’s also not expected to be the coldest either. We’ll likely see pretty wild weather swings, sizeable daily production swings and continued strong LNG exports. European natural gas reserves have already dropped to 85% versus 95% at this time last year pushing up European prices to levels not seen since October 2023. If they get a cold winter in Europe, U.S. LNG will be critical. High European natural gas prices can translate to higher prices here in the U.S., but only fractionally.
Long-term wholesale natural gas and power prices have both stayed fairly stable with both showing the strength to slowly rise. Especially wholesale electric prices. This long-term price strength is driven by the growth of LNG export demand by the end of 2025 by an additional 8 bcf/day along with the exponential growth in peak delivery electric demand. The peak power delivery demand chart shown above shows the original Megawatt peak power demand forecasted prior to 2024 and then updated mid-2024. The peak power demand increase from Intel, all the new Data Centers and more is staggering. The issue has been that while incentives were given to help bring new business to Ohio, the actual ability to meet this new peak power demand appears to have been overlooked. Now the power generation side is in catch up mode meaning new power plants need to be built to meet the additional power demand. The incentive to power asset owners to build new power plants comes from only two sources: higher power prices and higher PJM Capacity costs. The AEP power price curve, shown as an example above, clearly demonstrates the year over year higher prices for power for the next 5 years. There is an obvious correlation below the year over year increase in future power prices and the year over year peak power demand increase shown in the power demand chart. As we’ve mentioned in each of our past 4 newsletters PJM Capacity costs are rising nearly 9X beginning June 2025. Every consumer in Ohio with AEP, First Energy, AES or Duke Energy will be impacted by this June 2025 increase. The financial impact for each business will be painful.
We at RD Energy have created our own Capacity Impact Report to help businesses:
- Be informed about the coming electric cost increase
- Identify the financial impact to each business
- Discuss ways and programs to lower the financial impact
While the higher cost doesn’t take effect until June 2025, we’re working diligently to contact each RD Energy customer by the end of the year to get them their Capacity Impact Report and to schedule discussions. It is our opinion that every business needs to understand this issue enough along with identifying the financial impact so they have time prior to June 1, 2025 to explore ways to lower the impact and make changes where possible and update budgets.
The electric and natural gas sectors are in a state of change. Price volatility is increasing. Costs are increasing. Regulations are changing. Supply and demand fundamentals are always in a state of flux. Please feel free to contact us with questions so together we can talk procurement strategy and help your business through this time of unparalleled change.