The Kobiona Monitor
Volume 1 / Number 8
July 18, 2019
Kobiona’s leadership has enlisted the help of our Market Intelligence Desk to craft this monthly
publication to share major market dynamics impacting future power and gas prices. As every
client’s situation is unique, we encourage you to review market movements with us to decide
whether any action on your part could serve to lower your future costs or avoid known,
Natural gas is now the primary fuel source for power plants across the country and throughout New England. As gas prices often closely correlate to power futures, we monitor natural gas supply and demand fundamentals closely.
Prompt Month Prices
On the widespread heat, NYMEX prompt month trading rallied hard in early July jumping off the three-year lows of just a month ago. Because storage inventories remain below the five-year average and future prices are still close to historical lows, any modest changes to the weather forecast will have seemingly disproportionate reactions.
Dry Natural Gas Storage
On July 18th, the EIA reported inventories of 2,533 BCF through July 12th. This brings stocks to 291 BCF above levels this week last year, but still puts reserves at 6% below the five-year average of 2,676 BCF. Inventories have been in a deficit to the five-year average since the Fall of 2017.Gas and electricity futures remain “significantly discounted” in our view, close to 2016 levels despite a far less favorable storage position relative to that year when levels were at the top of the five-year range and close to full storage.
Natural Gas Production
After steadily-increasing production through May, production has flattened out and is not keeping up with EIA forecasts, a strong indicator the market continues to scrape the bottom.
NOAA’s 8-14 outlook predicts cooling, with below average temperatures for most of the country, after the current heat wave subsides.
Gas-fired electric generation year to date is exceeding the historically-high levels set in 2018. As the country becomes more and more dependent on natural gas plants for power generation, this is a market fundamental requiring close monitoring as it places increasingly strong burdens on gas inventories.
The New England Region (“ISO-NE”) sets a system peak one hour each year, the single hour during which the entire region was using the most power. This determines the capacity tag, and therefore individual capacity obligation (cost), for each electrical user for the following capacity year (June 1, 2020 – May 31, 2021). For those who pass through capacity, the capacity tag they set that hour is the largest determinant of their next year’s capacity costs. For those who fix capacity, this value influences the pricing for the term after their current contract.
Suppliers pay very close attention to capacity tag histories as this is where they stand to have the most risk in power deals. Capacity cannot be “hedged,” so suppliers have to pay the actual cost for each customer’s obligation each year even though they “fix” the cost they collect from each customer. Establishing a history of consistent or declining tags can help offset all-in electricity spends by up to 40%.
ISO-NE’s 7-day forecast shows a likely system peak could occur this combining Saturday 7/20 or Sunday 7/23. The region has never experienced a system peak on the weekend before. Peaks typically occur between 2 and 6 pm on weekdays, and usually the 2nd or 3rd day of a heat wave.
If you would like a “Capacity Refresher” to better understand the consequences of the system peak on your electricity spend, we’d be glad to schedule a time.
Follow the ISO-NE forecast: https://iso-ne.com/markets-operations/system-forecast-status/seven-day-capacity-forecast
Kobiona recently received licensing approval to broker gas and electricity contracts in Pennsylvania. If you would benefit from our assistance with your locations in the “Keystone State,” we’d be glad to help. We also appreciate your referrals to all the states in which we operate: Maine, New Hampshire, Massachusetts, Connecticut, Rhode Island, Ohio, New York, and Pennsylvania.
For those tasked with procuring power and gas for the first time — or the tenth time — the industry can seem overwhelming with densely-technical and sometimes conflicting information.We welcome your questions on how to apply our observations, as well as your feedback on The Kobiona Monitor. Please share how we can make this publication more useful by calling us on 844-209-7972, or contacting us via email, email@example.com.