Short-Term Key Drivers

1.  How hot will the summer months be in the U.S. – how much extra natural gas will be consumed in power generation?
2. Does U.S. daily natural gas production keep increasing from lower levels seen in May?
3. U.S. natural gas storage levels continues to be well above the past 5 year average year over year
4. U.S. LNG daily export numbers fluctuating – lower during heatwaves and higher when temperatures are more normal

Commentary

The month of June 2024 in the Midwest and northeast was a scorcher!  Electricity demand in the PJM region, which covers a large area from New Jersey to Illinois including all of Ohio, peaked at 147,976 MW on June 21, 19% more than the June hourly peak demand last year. During the heat wave, peak electricity demand each day was between 1% and 24% more than the maximum of any June day in the previous five years. PJM forecasted peak summer demand in its 2024 PJM Summer Outlook to be 151,000 MW. This is shaping up to be a very warm summer with July and August still to come.  It appears we’re going to get a reprieve in Ohio this week as more normal temperatures prevail, but enjoy it while you can, because most likely hotter days will return based on NOAA forecasts.

Rising energy demand in the region PJM serves is increasingly driven by the development of data centers throughout the PJM footprint, combined with the accelerating electrification of transportation and industry.

• Expanding data center load and a large Intel computer chip plant outside of Columbus, Ohio, in the AEP service area
• Adjustment for data center load by FirstEnergy in the Allegheny Power System transmission zone, primarily the Quantum Frederick campus in Maryland
• PSE&G adjustment for data centers and electrification of New Jersey ports of Bayonne, Elizabeth and Newark, funded by the Inflation Reduction Act
• Dominion adjustment for data center load in Virginia

The key point to know in all of this data is that every business needs to recognize that wholesale energy prices will be volatile both short-term and long-term.  How hot temperatures get this summer and how cold they get next winter will be critically important for the direction of natural gas and electric prices in the short-term.  How much daily natural gas is produced daily, how much is exported via LNG, how much is consumed in the making of power generation along with how much is in storage heading into next winter will be the key drivers of natural gas prices in the short and medium term.  Remember, LNG export capacity is expected to expand by nearly 40% in Q1 2025 adding as much as 8 bcf/day of additional natural gas demand next winter.  We also know for a fact that Intel, Amazon, Google, Microsoft and many associated and support business are:
a. coming online on the PJM electric grid beginning in 2026 – 2028 time period and
b. these new data centers and microchip plants will adding greatly to the electric consumption on the PJM grid at a pace of growth unparalleled in history.

In fact, AEP has recently noted that they expect the electric usage by 2028 will double on their distribution system primarily from all of the data center and microchip plants being built.  This new unprecedented growth in electric and natural gas demand in the coming years is likely to usher in a period of price volatility and escalation that we can only guess the extent of.

Each business needs an energy procurement plan in order to think through what is best for them and their energy budgets.  Do they buy electric short-term with the knowledge that all of this new electric growth will be coming online year after year or do they try to keep costs stabilized long-term by buying fixed prices for all or part of their future electric demand for 3, 4 or 5 years as a way to limit their energy price risk and upside price risk exposure?  Doing the same old thing, the same old way and contracting right before your energy contracts expire could prove to be a very detrimental path.

RD Energy continues it’s commitment to providing timely and useful energy data and information.  We provide a strong portfolio of energy suppliers to help our clients attain the lowest competitive electric and natural gas prices along with building a procurement strategy built around their company needs.  We treat every client as unique. We bring to the table our competitive energy pricing, energy industry knowledge and expertise along with strategic procurement ideas so our clients are buying electric and natural gas at the right time and the right way.  Always feel free to contact us at RD Energy at your convenience to talk about your business’ energy needs.  The planning begins now!