Market Update September 2021

Our Shipley Energy Commercial Solutions Team is excited to share with you the September Energy Market Updates to keep you informed on trends, weather, and other factors impacting the energy market. Want to catch up on what happened in August? Read Here.

Electricity Market Updates

Historic Points in the Market – 

There are historic market events that still get whispered about in hushed tones across our industry years later. To name a few, the 2005 spike when Rita and Katrina hit; the insanely high prices during the 2008 financial bubble and subsequent collapse; the Polar Vortex of 2014. Each of these moments created an anomaly in domestic electricity and natgas market that customers try to avoid when committing to a long-term fixed price. It appears following the most volatile trading week in more than a decade that we are once again at a historic point in the market.

The forward 12-month PJM curve is trading at 5.15 cents/kWh; for context, six months ago it was 2.98 cents. That means the one-year outlook has actually increased more than two full cents in that time. If you were unimpressed with your 6-cent renewal offer before the summer and need to make a move soon, get ready for a roughly 8-cent refresh.

Key Points for the Electric Market

  • U.S. natgas and electricity markets hit a 20-year low right before the pandemic started (19 months ago!). It’s risen ever since at a steady and sometimes aggressive clip. This increase seems to accelerate with each month to the point that a historic-looking forward market chart now points almost straight up.
  • A key reason for the recent increases is the exporting of liquified natural gas (LNG). Europe and Asia are willing to pay about five times what we are for our gas. This being said, the US is happy to deliver. This is driving up pricing for electricity back home as less natgas is available for generation.
  • Coming off of an unseasonably hot summer and anticipating a cold start to winter, we were already starting at a significant natural gas storage deficit compared to both last year and the five-year picture. Once again, less natgas generally equals higher electric prices.
  • Other exacerbating market factors include a lack of new drilling, increased pent-up pandemic demand, droughts in the West, and market manipulation. In addition, NITS (transmission) costs have increased significantly in most PJM utilities as a non-market-based way to increase your price even further.
  • One way to mitigate the price increase is through peak shaving, which can be a surprisingly effective way to cut your overall electricity costs. If you have the ability to curtail some or all of your load on high-usage days, this may be your price-equaling salvation. A Shipley Energy account manager is ready and willing to discuss this with you.

Action Advice:

If your current contract ends before January 2022, the time to act is now. You will very likely be looking at a 25-45% increase over your current contract. It’s better than either waiting (when all signs point to a heightened pace of increase) or going into the winter unhedged (when you could easily pay 20 cents per kWh for Jan and Feb). If a guaranteed increase is absolutely unacceptable, taking on more risk in your price structure is one way to potentially manipulate future pricing in your favor. But the market has shown us over the last few weeks – or months – that the riskiest way to gamble right now is to do nothing.

Natural Gas Market Updates

Global Energy Supply Concerns Cause Volatility –

The October 2021 natural gas NYMEX contract expired at $5.841. This continues the trend of significant increases in Nymex expiration price month over month following the August ($4.044) and the September ($4.370) expiration prices. The October Nymex expiration price is the highest for any month since January 2009 ($6.136). Currently natural gas markets are experiencing increased volatility due to energy supply concerns globally. The market cost of winter 2021 natural gas in both European and Asian markets is currently nearly 5 times the U.S. natural gas market winter prices. Both regions are lagging behind average levels of natural gas supply on hand entering winter and are dealing with concerns of supply shortages once cold temperatures move in and drive-up heating demand.

Natural Gas Winter Storage Levels in the US

Winter storage levels here in the United States are also lower than average for this time of year. The amount of gas in storage for winter began to fall behind the 5-year average in the early summer. This is when scorching temperatures drove up air-conditioning usage nationwide. More natural gas was diverted to fuel electricity production to meet the higher AC demand. This caused less natural gas to be allocated to winter storage. As we head towards winter there is the expectation for further upward movement for the Nymex market pricing as winter weather prompts increased natural gas consumption in the U.S and abroad.

Natural gas in U.S. underground storage for winter continues to trail behind the 5-year average level for this time of year. (Current Level: 3,170 Bcf vs. 5-year Average Level: 3,383 Bcf)

Action Advice:

With natural gas Nymex prices reaching upper levels not seen in over a decade, our pricing desk advice for customers approaching renewal is to continue to reach out to your Account Manager for weekly price updates for opportunities to lock in prices during dips in the natural gas market.

Petroleum Market Updates

Extremely Tight Fuels Market-

September marked the end of the summer driving season. This season brings with it lower gasoline basis with the switch over to sub and winter grade gasoline. September is also the shoulder season, as peak temperatures begin to fall, focus to heating oil and propane demand starts to ramp up. This past September has been starkly different than years past, more specifically, September of 2020 when fuel supplies were ample, as transportation fuel demand was still reeling from covid shock. Crude oil, transportation and heating fuels domestically are sitting at the lower end of the 5-year average for this time.

Here’s several key factors that are contributing to a snug and potentially extremely tight fuels market:

  • Domestic and international crude oil production has not rebounded to meet demand, a massive amount of spare capacity not being tapped/produced
  • OPEC+ has only added back 400K per day production with an average 2M bbl per day deficit
  • Transportation fuels, LPG and Nat gas liquids are the by-product of higher crude oil production
  • Trucking and global tanker market supply chains are significantly bottlenecked
  • EPA RINs and Renewable Fuel Standard irresolute regulatory environment causing severe cash flow constraints on refiners, causing rate cuts

The outlier coming out of the shoulder season is the weather. Any moderately cold sustained weather will cause supply shortages and possible power and electricity brownouts. Possibly worse than we’ve seen for a decade. This winter’s brownouts could be the worst on record due to dangerously low NGL and LPG stocks.  China stated they will secure/procure energy “at any cost” to produce electricity this winter and avoid any of brownout. This statement has shown the significance of how dangerously low electricity gas feedstocks are and the impact on our markets.

Action Advice:

Continue to speak with your Shipley account advisor on locking in supply in the forefront of this winter.  The spot market could see record level prices on any sustained cold or polar vortex spikes.

september monthly opening and current pricing table for crude oil, heating oil, gasoline, propane, and natural gas

Disclaimer: This report 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 this report.

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