The Shipley Energy Commercial Solutions Team is excited to share the July Energy Market Update to inform you of trends, weather, and other factors impacting the energy market.
Read the June 2024 Energy Market Update ->
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The August 2024 NYMEX Natural Gas contract expired for $1.907/MMBtu. This is the first month the NG NYMEX settlement has been below $2.00 since the May 24 expiration at $1.614. The settlement prices for June and July 2024 averaged $2.56 before the steep sell-off that brought the prompt NYMEX back under $2 for August. This is only the second time in the last ten years that the August NYMEX expiration has been under $2. The only other instance came in August 2020 ($1.854) during the peak of the Covid pandemic.
The sell-off for the NYMEX market has come about due to continued above-average gas levels available in underground storage along with ample amounts of total NG available to meet all current needs. This summer has been one of the hottest on record, prompting all-time records of natural gas being used to generate electricity to meet air-conditioning demands. Despite these record-high demand numbers, gas markets have remained in a slump, with NG storage and production volumes both remaining at multi-year highs. With so much gas available, there is very little concern for any significant strains on supply during peak winter months. With production and storage levels as the major unknown factor, how many major cold events are on the horizon for winter 24-25?
As of last week’s report, the U.S. Energy Information Administration shows levels of gas in underground storage that are 8.4% above last year and 15.7% above the average of the past five years. By the time we reach October, the level of gas available in storage will impact the market’s concern regarding the available winter gas supply.
Factors impacting the natural gas markets currently:
Action Advice: With prompt NYMEX market prices falling, we recommend locking in your current open positions through the rest of 2024 and 2025.
Other rate options include Basis Only or NYMEX Lock deals, which separate the two elements of your natural gas supply price to look for potential value compared to standard Fixed pricing.
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August 2024 Natural Gas NYMEX Settlement Price: $1.907/MMBtu
Last month: July 2024 Natural Gas NYMEX Settlement Price: $2.628/MMBtu
Last year: August 2023 Natural Gas NYMEX Settlement Price: $2.492/MMBtu
The news in the electricity world was the recent announcement of a ~500% increase in PJM capacity costs for 2025-2026. Currently (and until May 31, 2025), capacity prices are in the ~$40-60/MWDay range. Effective June 1, 2025, those prices go up to $270 across PJM (and over $300 in the BGE utility footprint) until May 31, 2026. Every customer receives these charges as a part of their bill, and they usually are included in the per-kWh charges from the supplier. Capacity is the payment to the power plants to be “on standby” – ready to generate electricity when the grid needs it to keep all our lights on and our businesses running. The underlying factor behind the increases is the retirement of older coal and natural gas-fired power plants and our increasing power demand – more power plants are needed, and fewer are available. The increase in renewable energy generation from solar and wind is helpful. Still, those power sources, without large-scale energy storage attached to them, haven’t yet proven to be as reliable in providing electricity at the exact times it is needed by the grid.
This increase is a completely independent factor from our energy cost – those prices have been relatively stable and are still pretty attractive. The 12-month electricity price on the last Friday in July was within $0.10/MWh ($0.001/kWh) of the price on the last Friday in June for Ohio and within $0.20/MWh ($0.002/kWh) in PA. The 12-month price is still running ~$3/MWh cheaper than the 36-month price in Ohio and trading ~$3.50/MWh below the 36-month price in PA. (Remember that these numbers are for energy-only rates and do not include the other components of an all-in fixed retail price…like capacity.)
The underlying market fundamentals suggest that rising energy prices are still very possible. Keeping in mind that natural gas is a major feedstock for electricity generation and a significant source of volatility in electricity prices, you see news and trends that argue both for and against rising prices:
See last month’s Energy Market Update from Ron Martin, former anchor for WGAL-TV.
Watch June 2024 Energy Market Update Recap ->
The wholesale markets watch these factors, and changes can push prices up or down daily. Based on where we stand now, we recommend evaluating these strategies:
Your to-do list for August:
Prices in July were hampered by another month-long selloff after a positive June. The weakness in prices overall could be attributed to the predominant themes seen across the whole barrel for this year. The EIA has been publishing weak motor fuel demand for all driving seasons. Our analysis over the last few months has pointed out that we did not agree with the reported unseasonal weak demand. Last month, we wrote to customers that “we feel gasoline and diesel demand may be underreported [by EIA] and will eventually be revised higher.” One could attribute the unseasonal summer price weakness partly to the weak demand published weekly by the EIA.
On July 31st, the EIA reported and revised gasoline demand to the highest level in 5 years. People are traveling, and the consumer is still spending. You would have to go back to pre-COVID for such a high gasoline demand print of 9.396 million bbls per day or 352K bbls per day above the weekly reported demand print. Diesel revisions were also slightly higher but only by 2% or 82K bbls per day (excluding renewable and biodiesel). 2024 overall has represented weak domestic distillate demand, not eclipsing the 4 million bbls per day bellwether. The industrial complex has been slowly recovering, but overall, restrictive economic policy has capped higher industrial output, thus diesel usage.
Macro themes we are closely watching that will affect prices:
Prompt and winter strips NYMEX ULSD is trading 20-30cpg below the 5-year historical average, which presents a great opportunity for forward hedging and locking in budgeted spend. Cap program premium prices have fallen significantly from historic highs to lows. Although premiums are slightly higher from the historically low volume summer trade, lower overall prices still present some of the best values not seen in 2-3 years. Capping your winter price risk is a great way to take risk off the table and also participate in the downside. Please contact us to discuss opportunities to lock in your forward heat and diesel demand.
Want to help your business navigate the current market? Get started with your Shipley Energy Advisor today!
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.
