Shipley Energy

 

Energy Market Update June 2022 Recap

Our Shipley Energy Commercial Solutions Team is excited to share with you the June Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market.

Watch Our Market Update Video – Presented by Ron Martin

 

Electricity Market Update

After five straight months of price increases, the electricity market finally saw a sharp pullback in June prompted by significantly reduced natural gas pricing. The forward PPL 12-month curve dropped 33% from a whopping 11.15 cents down to 7.43. It’s still extremely high compared to pre-Covid rates of 2.65 cents, but the opportunity for near-term renewals just got a lot less ugly.

Most of the market fundamentals still support a bullish market: historic inflation, post-pandemic recovery, a natural gas storage deficit, and of course the war in Ukraine. However, the Supreme Court’s decision to severely limit the EPA’s authority combined with the shutdown of a the Freeport LNG (liquified natural gas) facility created enough bearish news to send prices plummeting. In addition, the critical non-energy price component of Capacity went down significantly when auction prices for a June 2023 start cleared far below expectations.

April 2023 and beyond continues to show the best opportunity, though the gap between today’s pricing and April’s has thinned out considerably. This means there’s opportunity for 2022-renewing customers who waited in the face of extremely high rates to do significantly better, as well as 2023-renewing customers to jump on attractive forward rates before they start to look at lot like where 2022 has been.

Action Advice:

  • Large customers renewing anytime in 2022 would do well to refresh prices this week and consider locking in for at least 18 months. Many will still see their price doubling from last time, but a month ago it would have been tripling.
  • Large customers with a moderate risk tolerance renewing anytime in 2023 should consider a “portfolio approach” which locks in some of their energy now and lets the rest float. Those with a very low risk tolerance need to seriously consider all-in fixed rates for 36 months or more.
  • Smaller customers renewing in 2022 should compare today’s fixed-price offers to their utility options. In nearly all northeast utilities except BGE, today’s rates should look fairly attractive compared to the alternative.

Petroleum Market Update

Major disruptions in physical supply at terminals across Pennsylvania and the East Coast are causing some suppliers to come up short, unable to provide basic supply to their customers. The US continues to export diesel and other distillates to areas around the world, creating higher prices and shrinking domestic supply. In addition, inventory is still well below pre-covid levels.

US exports of crude oil and select petroleum products with daily records from January 2016 to June 2022

Will Muller, Business Development Manager, said in an interview with Shipley Energy spokesperson, Ron Martin, that:

“Shipley Energy is ensuring our customers that we have the supply they need readily available and that scheduled deliveries continue to go out on time. For businesses who are not Shipley Energy customers already, we’re suggesting that they partner with us. We have over 15 bulk plants located all across central Pennsylvania and the Baltimore area. We also have 150 delivery vehicles ready to keep tanks and trucks full. We offer 4 pricing tiers for our diesel, so we can work with any budget and help find the best plan for each business. We deliver several million gallons of both diesel and propane to our commercial customers annually.”

Shipley Energy Commercial Fuels Territories and Bulk Plants

Shipley Energy Commercial Fuels Territories and Bulk Plants

There hasn’t been much volatility in the propane market recently. While we’re seeing increases in pricing, it’s not nearly as noticeable as the diesel markets. There’s really no concerning seasonal factors with propane. Of course, summer prices are generally lower than winter prices due to lower usage and varying basis differentials. We have a lot of customers, especially in the agriculture industry, that lock in summer rates for winter usage.

Propane price summary by week from January 2022 to July 2022
Propane price summary by week from January 2022 to July 2022

Winter propane pricing typically starts at the beginning of October. We have a few different pricing options that customers can choose from for their propane needs. Our team works with each business to individually determine the best pricing plan that coincides with their usage profile. We want to ensure our customers’ are getting exactly what they need when they need it.

Key Points

  • June marked a peak all-time high for gasoline futures at $4.32/gal
  • $4.64/gal Heating oil diesel futures and $123.68 per barrel crude oil nearing their 2022 highs which rivaled 2008 all-time highs
  • Since Junes peak, energy commodities have collapsed 20-25% in response to growing recession fears as data showing GDP growth concerns show a contracting global economy
  • Strong US Dollar has helped contain even higher US commodity prices
  • Push-pull supply demand continues to gyrate energy prices, as demand and recessionary catalysts clash
  • Backwardation market structure curve continues to point to strong energy demand, with little demand destruction due to high prices at the pump
  • Travel demand has been robust, supported by mobility data as travelers uninhibited by Covid concerns seen last summer
  • Hurricane season kicks off in a tightly supplied market, with upside price risk given any threats to the heavily concentrated Gulf Coast refining center
  • China’s zero Covid lockdown policy ending which points to a bullish demand picture for crude oil
  • Oil demand set to grow year-over-year 1-2M barrels per day in already tight supply picture coupled with refining capacities near maximums

Action Advice:

With the recent collapse in energy and other commodities we strongly urge customers to review their budget and risk for the balance of this year into 2023.  With the market structure still in steep backwardation after such a selloff, the forward curves are still pointing towards a growing demand environment.  In our view the nearer to mid-term pricing environment has created and opportunity to lock in fuel demand.  Basis and cash markets have found balance, which allows Shipley to provide customers peace of mind taking down price risks.  This year has put serious strains on fuel budgets for those who did not lock in during a rebounding demand environment.  We continue to reiterate that customers review their fuel demand, layering in sections at a time.  Please discuss variations to traditional fixed forward and cap programs with your advisor.

Natural Gas Market Update

The explosion at the liquid natural gas facility in Freeport Texas has put almost a 5th of US capacity out of commission. The Freeport LNG export terminal is expected to be shut down for three months, bringing 2.5% of total production back into the domestic market. Analysts are suggesting that this will result in an increase in US storage injections, thus bringing significant market relief. July NYMEX has fallen to a 5-week low, pushing natural gas below $7 for the first time in more than a month.

Working natural gas in underground storage
Working natural gas in underground storage

 

Near-month natural gas futures prices in NYMEX
Near-month natural gas futures prices in NYMEX

Key Points

  • The July 2022 NYMEX Natural Gas contract expired at a price of $6.551. That expiration price is well below the June 2022 expiration price of $8.908. This is the first time since February of this year that the NYMEX settlement price has fallen month over month.
  • U.S. natural gas futures have seen slight rallies up from the lowest prices. This is due to daily output of gas falling and higher demand forecasts than previously expected because of high temperatures in the West and South. The price gain comes ahead of this Thursday’s EIA Natural Gas Storage report. This is expected to show utilities added more gas to storage last week than usual despite hotter than normal weather.
  • The outage of the Freeport liquefied natural gas (LNG) facility has made several impacts on the natural gas market. Extra available gas is being entered into winter storage, making more gas available for use in the United States. Freeport is the second-biggest U.S. LNG export plant. It was consuming about 2 billion cubic feet per day (bcfd) of gas before it shut down on June 8.
  • Analysts forecast U.S. utilities added 74 billion cubic feet (bcf) of gas to storage during the week ended July 1. For comparison, there was an increase of 25 bcf in the same week last year. And is still greater when compared to the five-year (2017-2021) average increase of 60 bcf. If correct, last week’s increase would boost stockpiles to 2.325 trillion cubic feet (tcf). This is 11.7% below the five-year average of 2.633 tcf for this time of the year.

Action Advice:

Recent dips in natural gas pricing driven by the outage of the Freeport LNG facility and other factors have created opportunities to lock in natural gas rates. These rates are some of the lowest pricing the market has seen since March/April. Reach out to your Account Manager today for price quotes on both shorter (6-12 months) and longer term (24-36 months) price options.

 

June Month Opens and Closes

 

Disclaimer: The market update is intended solely for informational purposes only. Shipley Energy Company does not warrant or attest to its accuracy. All actions and judgments taken in response to this report are the recipient’s sole responsibility. Shipley Energy Company shall not be liable for any direct, indirect, incidental, consequential, special, or exemplary damages or lost profit resulting from these market updates.

Jul 7, 2022
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