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The abnormally warm October expected to continue through November for the Eastern U.S. is very bearish for wholesale natural gas prices.  The U.S. natural gas storage surplus declined every week of the summer and was expected to be gone by the end of the year, but that is definitely not expected now.  We we may actually see record the storage surplus growing throughout November.  For those needing to contract natural gas supply in the next year, this could be a golden opportunity.  We know that energy commodities love price volatility and what goes down will go back up.  It’s just a matter of when and why.

Although the bearish natural gas trends is happening now, we know there are a number of potential price stimulants waiting in the wings to create more volatility.

• Cold temperatures will surely arrive sometime when the current high pressure ridging breaks.  There is plenty of cold weather bottled up in northern Canada with ice and snow pack building.  The current colder temperatures  in the west and warmer temperatures in the east will eventually shift.
• Earlier in the year when natural gas prices dropped too much, U.S. producers throttled back daily production numbers in support of well-head prices.
• U.S. LNG exports are expected to get near maximum levels in November as facility maintenance programs end.  All eyes are on the Middle East.  The potential Israel and Iran conflict to worsen could lead to Iran shutting off the Strait of Hormuz.  This could be bullish for oil prices and place more value on European natural gas prices and higher value on U.S. LNG exports thus pushing up U.S. domestic natural gas prices.
• The Russian/Ukraine natural gas pipeline agreement whereupon Russia transports gas through Ukraine to Eastern Europe ends at the end of 2024.  The chances for renewal seems slim.  Reducing natural gas to Eastern Europe beginning 2025 again is bullish for European natural gas prices, bullish for U.S. LNG prices, and therefore, bullish for U.S. natural gas domestic prices.
• Last but not least, the U.S. producers can currently ship 14 bcf/day of LNG around the globe.  However, by the end of 2025 that daily volume will rise by about 40% to 22 bcf/day greatly increasing the demand for U.S. natural gas. The world is very thirsty for U.S. natural gas.

Again, enjoy the warm weather and take advantage of the low well-head natural gas prices now.  Things can change quickly.

Now let’s discuss wholesale electric.  While wholesale electric prices have in recent years run very parallel with wholesale natural gas prices, the two energies has seen a obvious disconnect this summer as the wholesale electric markets have become very focused on the growing power demand imbalance forecasted to occur over the next 5 years.  The currently available power generation on RTO PJM is insufficient to meet the rapidly growing power demand.  Some could say that the emphasis placed on rapidly growing the electric usage should have also been placed on growing the generation assets needed to meet the power usage growth.   In our last three newsletters we focused quite a bit of attention on the dramatic rise in the PJM Capacity Auction price to begin June 2025.  The PJM capacity price is jumping from the current 28.92/MWD to $270.92/MWD or an increase of nearly 10X.  The impact on consumers beginning next June is very painful to energy budgets and bottom lines and most are either not aware of it yet, or hope and believe it won’t affect them.  Unfortunately, since FERC approved PJM to reform their Auction pricing model to a more conservative approach, this “change in law” will allow almost every supplier to pass though this unexpected increase to nearly all consumers next June 2025.  We don’t want to say “all” because there may be some rare exceptions, but we expect it to affect the vast majority of business and residential consumers regardless of how long or when their current electric supplier contracts end.

The chart we’ve included shows the massive increase in the Peak Load Delivery usage originally forecasted a couple of years ago shown in the first column to the much higher revised Peak Load Delivery forecasts released mid-2024.  To meet this new higher Peak Load Delivery increase and to avoid the much higher potential of black outs in the hottest of summer or coldest of winter, PJM needs substantial growth in fossil fuel power plants and they need it fast.  The increase in the PJM Auction capacity price to $269.92/MWD is the first stimulant to prove to potential fossil fuel asset generation owners that the economic value proposition is now available to build new fossil fuel sourced power plants.  Unfortunately this higher PJM Auction capacity price while stimulating generation asset growth will likely remain high for a number of years and could go even higher.  Worse yet is these higher PJM Auction capacity costs will be greatly impactful and bring financial harm  to Ohio’s businesses, schools and communities.  While current wholesale power prices have been relatively calm due to falling natural gas prices in October, there’s few that believe power prices aren’t going to soon rise sharply in the short-term when colder temperatures show up in long range forecasts and natural gas prices reverse trend and head back up.   Long-term, as the power demand on PJM increases as Intel, Google, Amazon, Microsoft to name a few adds to the massive increase in power usage and as natural gas prices increase with rising demand from the growth in LNG exports, power prices could trend up for the next five years or until there’s a better balance between power demand and supply.  We really feel like as we have said over the past few months that we are in the calm before the storm in terms of the potential for higher power prices.

We believe businesses, schools and communities need to get informed, know the impact of the higher PJM auction prices starting June 2025 and talk strategy to explore ways to help lower the impact.  We have begun to send out Customer Impact Reports to give clients clarity on the impact dollar amount beginning June 2025 and so we can start discussions.  2025 is shaping up to be a very volatile year for both electric and natural gas prices and the next few years could get worse.  The discussions and procurement planning begins now.  Getting the best competitive electric and natural gas price is something we will help each business achieve, but consumers need to understand and strategize.  We place great importance on our clients having the best price and the best procurement plan based on the best energy information.  Please feel free to contact us with questions.