September is often viewed as a transitional month. Like, transitioning from summer to fall.  In terms of energy prices we saw natural gas prices transition from near $2.00/MMBTU on 8/30 to near $3.00/MMBTU on 9/30.  Why did this happen?  Will prices keep rising or will they fall back down?  Please remember, electric wholesale prices are primarily driven by  natural gas wholesale prices and trends. So, although we often give natural gas price commentary, it is because electric prices is following along with natural gas.

The #1 driver of natural gas prices throughout September was the weekly natural gas storage injection number.  Although natural gas storage injections was expected to be lower than last September, each week the actual injection surprised and came in even lower than expected.  We exited last winter with natural gas storage was about 420 bcf higher than April 2023 and 630 bcf higher in April 2024 compared to the April storage balance over the past five years.  This gave us some attractive NYMEX natural gas prices throughout the spring and summer of 2024, but the natural gas storage surplus has shrunk week after week all summer long.  The year over year storage surplus has dropped currently to 160 bcf versus this time last year and it’s down to 230 bcf compared to the 5 year average.  By the end of October the year over year surplus could be near zero and versus the past 5 year average down to about 100 bcf.

By reducing daily natural gas production U.S. producers have :

1. Kept the storage surplus dropping week after week by about 3 bcf/day
2. Kept natural gas well-head prices from collapsing under the weight of over-supply and
3. Kept just enough natural gas moving to the market to handle the natural gas power generation load in a hot summer, strong LNG exports, storage injections and stable well-head prices.

As mentioned before each week that low weekly storage injection surprised energy traders by being even lower than expected, prices went up.  While many consumers enjoyed the low summer prices, many hung on too long to fix new contracts expecting prices to drop even more in the fall.  While that idea makes logical sense and occurred that ways in the distant past, the last couple of years has not seen prices drop in the fall.  Actually just the opposite.  Last week natural gas prices increased by $.50/MMBTU as we saw another low storage injection and Hurricane Helena.  We were thinking that heading  into Monday September 30^th  prices might fall back sharply due to the fact that there was no gulf production damage with the hurricane and 4 million homes and businesses lost power that reduced power demand.  However, natural gas prices remain strong, although we’re seeing a little weakness.

In the short term, whether your electric or natural gas contracts are up for renewal now through next summer our advice is to be closely looking at prices soon. If not, what are you waiting on?  Why?

1. Energy traders seem poised at the edge of their chairs waiting on some sign of colder weather to appear.
2. The storage surplus keeps dropping week after week.  By the end of the year it could be completely gone.
3. If we have anything that resembles a more normal winter, prices will likely rise sharply.  How high they go will depend on how long winter lasts.
4. LNG exports are expected to hit maximum levels this fall and winter especially if Europe has more of a normal winter.  Europe is very dependent on U.S. LNG to survive a cold winter.
5. LNG export capacity is expected to grow from 14 bcf/day to 22 bcf/day by the end of 2025 adding strong demand
6. We’re still in a very active Hurricane season.  What if natural gas production gets knocked off-line?

We feel it important to once again mention the unknown in regards to wholesale electric prices in 2025 – 2029.  As we discussed in our past two newsletters and podcasts there is a very large concern in regards to:

1. Growing electric demand over the next few years
2. The aging electric grid infrastructure to handle the load growth and
3. The lack of new electric generation assets being built to meet this new growing demand.

Data centers by Amazon, Google, Microsoft and others along with chip manufacturers like Intel will be adding unparalleled electric demand growth in Ohio and throughout the PJM electric grid.  We already know that in an attempt to get new generation assets built and keep some generation plants from being retired, the PJM capacity rate is jumping from $28.92/MWD to $269.92/MWD starting June 1, 2025.  This will be extremely financially impactful to Ohio’s consumers; manufacturing, schools, municipal communities, restaurants, grocery stores, residential….everyone.  The concern in the coming years in regards to electric is three-fold:

1. Will generation prices rise due to lack of generation versus the growing electric demand,
2. Will electric prices rise due to rising natural gas prices and
3. Will PJM capacity prices not only stay elevated like the increase coming June 1 2025, but will they go up even more starting June 1, 2026 and beyond?

It has never been more critically important to be informed and have a energy procurement plan.   As always, if your business, school or community has questions in relation to natural gas or electric and the financial impact on your business’ spend or wants to talk about new or extending electric and natural gas contracts, please feel free to contact us.  It’s never been more important to make sure you are buying electric and natural gas at opportune times, shaving capacity costs through Peak Load Management and earning income from Demand Response whenever possible.  The point is energy procurement should be done with a strategy in mind and not just on a given day as a unwanted task to be done.  We often wonder if this is the calm before the storm?