Our Shipley Energy Commercial Solutions Team is excited to share with you the May Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market.
The June, 2022 NYMEX natural gas contract expired just under $9. That price is a dollar higher than the May, 2022 expiration price. The continued price rally is being driven by global energy supply concerns and the prospect for higher gas demand over the summer to help fuel electricity generation. Levels of natural gas in storage for next winter continue to lag behind both last year’s levels and the 5-year levels, prompting even more concern for supply.
Forward power prices in PJM are up 173% from last year’s average settled price for the same period. On June 1st, the price to compare of power companies in Pennsylvania went up anywhere from 6% to 55%. Among the increases is Met-Ed, a 42% jump to 10.62 cents, West Penn Power, a 55% jump to 10.11 cents, and PPL, a 21% jump to 11.69 cents.
With prices continuing to rise across the board, the team at Shipley Energy urges businesses to investigate all options and to lock in lower rates now before more increases take place. Electricity prices are expected to continue to soar to new heights and even considering a partial hedge for next year will put you in a better position. As for the fuels market, we suggest locking in forward distillate and gasoline demand with your account manager, to help reduce basis and price volatility providing confidence in fuel planning budgets.
Each month we seem to find the new apex for electric rates, and then the next month surpasses it. Fasten those seatbelts, because there’s no visible end to this ride.
Electricity prices have been on the rise and are set to continue to soar this summer. The Federal Energy Regulatory Commission will be more closely monitoring the electricity and natural gas markets for possible market manipulation. The reason? Recent run-ups in prices are unlike anything we’ve seen in the past and aren’t fully supported by market fundamentals.
After April saw a 41% jump in the 12-month forward curve to 10.02 cents per kWh, May jumped another 11% to close at 11.15 cents. As we’ve said previously, these are energy-only rates which historically have accounted for about 60% of a customer’s all-in fixed price. Adding in Capacity, Transmission, Ancillaries and GRT could easily produce all-in fixed rates of more than 15 cents per kWh for a business looking to go short-term.
The natural gas market typically helps set the stage for electricity prices. Right now, both markets are on the rise. Forward power prices in PJM are up 173% from last year’s average settled price for the same period. Price increases are being driven by higher natural gas prices and the anticipation of a hot summer with increased demand for electricity.
Natural Gas Futures Prices at Select Trading Hubs
Retrieved from Federal Energy Regulatory Commission on May 20, 2022
Some customers still to renew in 2022 are looking at literally tripling their all-in price if they don’t layer in cheaper forward years or take on some risk in the short term. This is supported by all of the fundamental factors in the market – historic inflation, post-pandemic recovery, a natural gas storage deficit, and of course the war in Ukraine. It makes sense that rates are high and that they keep getting higher.
Higher gas prices and higher forecasted temperatures will put some serious upward pressure on electricity prices in the coming months. Our market advisors are urging businesses to lock in now before future rates go even higher.
The light at the end of the tunnel continues to be April 2023 and beyond, where forward rates are significantly lower though still quite high compared to pre-Covid rates. If your instinct is to say “I never lock in when the market’s high so I’ll just wait,” we urge you to consider that not locking in next year’s lower rates now is the same as making a decision to gamble at a time when the ceiling has significantly more pull than the floor. Pre-Covid rates are no longer relevant in this market, and even a partial hedge starting in April (for example, 40% of your energy for a 24-month strip) is better than doing nothing.
Playbook for our action advice remains. Volatility for refined products and other commodities to remain sky-high. The whipsawing distillate basis has seemingly peaked as outright shortages passed and calmed down throughout the month of May. This has helped to start to provide confidence in the forward distillate curve, as basis markets are now fetching lower premiums above NYMEX futures prices. Regionally refined product tightness will remain throughout the year. We suggest reviewing solutions for locking in forward distillate and gasoline demand with your account manager. These conversations will work to minimize basis and price volatility and provide confidence in fuel planning budgets.
Chart of NYMEX settlements from 2015 to 2022 retrieved from EnerConnex
We recommend that customers consider price options for both short (3 months, 6 months) and longer term renewals (24 months, 36 months) to find the best deal possible in the current market. For customers looking to renew we recommend reaching out to your account manager for daily price updates to keep up to date on moves in the gas market and any opportunities to lock in on days when gas pricing is lower.
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.