The Energy Implications of Putin's War

Energy Markets Update 

Weekly natural gas inventories

The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 129 Bcf. The five-year average withdrawal for February is about 142 Bcf. Total U.S. natural gas in storage stood at 1,782 Bcf last week, 10.5% less than last year and 10.7% lower than the five-year average.

Putin's War

• Russia has unequivocally launched an invasion into Ukraine this morning. Our prayers go out to the people of Ukraine in this time of crisis.

• The most imminent impact to energy markets is in the oil sector; Brent and WTI are trading up about 7% and hugging the $100 bbl threshold

• We see US gas and electric prices to be somewhat insulated from the Ukraine crisis given physical limits to export capacity. In other words, there is no reason to panic, in the US at least. The unfortunate reality is that Putin has much of Europe over the oil barrel for now.

• In the mid-term however, broader inflationary pressures and impacts on financial flows are a real risk that needs to be monitored. We know that fear can move markets until clear and undeniable physical evidence intervenes. All eyes on the gas storage report and drilling numbers as manifestation of this physical evidence.

• Long term implications are less clear. Will Germany and France rethink their shift away from nuclear energy? Will the US accelerate its LNG export capacity to displace Russian gas? How quickly will US drillers respond to $100 oil and $5 gas?

Renewables backlog for PJM

• PJM put in a plan this week to get rid of their interconnection renewables backlog

• 225,000 megawatts of energy projects are waiting on administrative approval from PJM

• PJM proposed that they prioritize around half of the projects, specifically the ones considered “ready” compared to early-stage applications

• Part of the proposal is closing new applications until 2024

• FERC may also release new rules this year that affect interconnection backlogs

Unitil of MA Proposes Alternative Default Commodity Offering

• Fitchburg Gas and Electric Light Company d/b/a Unitil proposed an alternative procurement plan for default service electricity supply
• Unitil made the proposal due to the opt-out municipal aggregation proposed by the City of Fitchburg, which effectively cannibalizes and increases the price for the utility’s existing default offering.
• Unitil intends to issue an RFP for 100 percent of its supply requirements for its small and medium customer groups
• The RFP would also allow bidders to offer various wholesale prices. They would have monthly fixed adders be attached to the load-weighted average real-time locational marginal price
• If Unitil receives both fixed and varying price offers that qualify, it would evaluate based on the lower overall prices from each offer

New York PSC Commissioner calls for re-evaluation of Commodity Offering

• New York PSC Chair Rory Christian requested in a recent letter that Consolidated Edison undertake changes during its next billing cycle for small customers
• The customers of the service saw significant increases in supply bills partly due to cold weather, but Christian also claims the hikes were exacerbated by unique billing methodology created for profit
• New York Governor Kathy Hochul also recently urged ConEdison to review its billing practices
  Christian suggested that Con Edison should rethink its approach of forecasting its hedge value in billing cycle updates, thereby reducing price volatility
• New York PSC Chair Rory Christian, in a recent letter to Consolidated Edison, requested that the utility undertake changes in its next billing cycle

NE States Showed Mix Progress on Renewables

• A CT DEP report from last fall showed that emissions are on the rise in the state of Connecticut. Connecticut’s Global Warming Solutions Act calls for a 45% reduction in greenhouse gas emissions by 2030. Its 2018 emissions were up 2.7% year over year.
• Connecticut environmental groups are pushing the state to adopt laws that would allow citizens to sue if the state does not meet climate goals put out by the legislature. Laws in MA, RI, and VT have legal enforcement mechanisms.
• Massachusetts emissions for 2020 emissions were roughly 28.6 percent lower than 1990 emissions
• While this is enough to satisfy the state’s interim legal climate requirement of 25% by 2020, many note the drop may be due to the covid pandemics impact on greenhouse gas usage
• On Feb 8th, the Massachusetts Department of Energy Resources proposed rule changes that would favor all-electric building construction
• DOER also proposed a separate, more stringent stretch code, that would give climate focused towns and cities a third code option
• Many climate activists feel the new regulations do not go far enough, and do not allow local governments to prohibit new gas hookups

Capacity Auction Results Delayed in NE due to Killing Energy Center Legal Ruling

• The D.C. Circuit Court of Appeals issued a stay on FERC’s decision to allow ISO-New England to terminate its capacity supply contract with the Killingly Energy Center in CT
• While it is unlikely FERC will change its decision on Killingly, the potential funding would change the ISO’s energy auction, which is used to secure funding for power plants in the region and ensure NE has enough energy 3 years in advance
• The ISO has stated they have computed auction results under a with and without Killingly scenario, and that they will keep the auction results secret until a decision on funding has been made
• Analyst expectations are for a low auction price < $3 per kW-Month.

Natural Gas Storage Data

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