Energy Markets Update

In this newsletter, we cover key factors impacting US energy markets. We report on the record US LNG exports, the recent revamp of the ISO-NE Capacity Market, and carbon reduction program check-ins, as well as a federal policy update regarding tariffs and dispatchable generation. 

Table of Contents

• Gas & Power Update
• Foot On the Gas: A Record Volume of US LNG Traveled the Globe in January
• ISO-NE’s Capacity Market Overhaul
• Compliance Time: Carbon Reduction Programs in Boston and NY
• Federal Policy Update: Tariffs & Prioritization of Dispatchable Generation

Weekly Natural Gas Inventories

Source: EIA

Source: EIA

US Energy Market Update

• In its Feb 11 Short-Term Energy Outlook, the US Energy Information Administration boosted its 2025 estimates for spot natural gas prices, indicating that colder weather and higher demand this heating season will weigh on storage inventories through the end of 2025.
• At 124.4 bcf/day, natural gas demand in January was 12% higher than the 5 year average and consumption from the electric power sector, at 37.6 bcf/d for the month, was 20% higher than the five year average.
• NYMEX gas markets are up on the week, adding about 20 cents on the balance of the 2025 strip and 10-15 cents on the 2026 strip. The traded price for March 2025 gas flow, now around $3.70 per MMbtu, increased by over 20% (+70 cents) since the start of the month.
• The key driver for recent price movement is weather. Last week, a forecast for the end of February was revised to be colder than originally expected; and markets went running. While this has not (yet) been a winter of any particular calamity, it has been colder for longer than the average over the past 10 years.  
   
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  Source: NOAA
• FERC approved a PJM plan to fast-track generation interconnection by accelerating review of shovel-ready projects, expanding the quantity of generators within each review tranche, and by expanding access to the grid through underused interconnection capacity by revising its Surplus Interconnection Service rules. PJM has signaled it could experience capacity shortfalls by 2026 despite a surplus of projects waiting in its interconnection queue. The grid operator estimates its Reliability Resource Initiative could bring about 10 GW online 18 months earlier than if the projects followed the grid operator’s normal interconnection process. The new program would prioritize review of projects for “reliability, viability and availability.”
• New England ISO confirmed it would not seek to extend its regional winter reliability program, the Inventoried Energy Program (IEP), beyond the Dec 2024 - Feb 2025 season. The grid operator also stated that recent analysis using its new Probabilistic Energy Adequacy Tool (PEAT) tool indicated that near term adequacy risk to the grid region is very low.
• The Baltic countries of Estonia, Latvia and Lithuania physically disconnected from Russia's electricity grid and synchronized with the EU's system on Sunday, a move that had been planned since early on in Russia’s invasion of Ukraine. This strengthens the EU’s grid system overall, however gas prices in the EU recently breached a 2 year high due to colder temperatures and lower output from renewable energy resources. 

Foot On the Gas: A Record Volume of US LNG Traveled the Globe in January

US LNG delivered exports reached a record 9.86 million mt in January. Here is a look at recent trends in the US liquified natural gas industry:

• Recipients of US LNG Exports - January 2025:

  • Europe: 72%

  • Japan/South Korea/Taiwan: 10%

  • Other Asian countries: 8%

  • Middle East/North Africa: 5%

  • South America: 3%

  • North America: 2%

• About 18% of January exports went around the Cape of Good Hope, 5% through the Suez Canal, and nearly 2% through the Panama Canal. The remainder were routed through other trade passageways. 

A Closer Look

• Europe is coming off of a heavy import month (see chart above)  and Axpo, a Swiss renewable energy producer and international leader in energy trading, expects a material increase of those volumes in the coming weeks. We note that while beginning the season in a strong storage position, EU gas storage sites are now only filled to 49% of capacity as of Feb. 8, with an overall target of 90% by November 1st. Landed prices of LNG are now above $15 per MMbtu, a 2 year high.
• Japan’s Prime Minister Ishibia Met with the US President last week to discuss an expansion of the Alaskan pipeline and increased U.S. LNG export ventures to support Japan. The proposed $44 billion project would create an 800-mile pipeline from Alaska's North Slope to an LNG export terminal in Nikiski, offering a shorter route to Asian markets (see Proposed Route below).
• Japanese Prime Minister Ishibia expressed interest in importing various resources at stable prices. However, Japan Gas Association Chairman Uchida voiced concerns about potential higher costs compared to current global contracts due to the cost of building the infrastructure that the U.S. is encouraging Japan to invest in.
• In 2023, the U.S. supplied 8% of Japan's LNG imports, ranking fourth among suppliers. Despite this, Japan's LNG demand has been declining, with a 25% drop from 2014 to 2023 and projections of further 22-31% decrease by 2030.Source: Office of the Federal Coordinator 2012

ISO-NE’s Capacity Market Overhaul

• Delayed Auction & Market Overhaul: ISO-NE announced in mid-2024 that the 19th capacity auction (which would normally have happened this month) would be delayed until 2028 in order to implement a new prompt/seasonal market structure. Auctions under this structure (pending finalization and FERC approval) would more accurately account for seasonal differences in resource availability and demand, as well as a shifting resource mix. The fundamental difference is that ISO-NE will abandon its 3-year ahead auction program which has been policy for 18 years, and move towards a short term season clearing market with better insight into generation availability and load trends. This model more closely mirrors the practice used in New York ISO. Should all go to plan, customers may see less volatile capacity prices, especially during peak seasons, given the auction would be more tailored to market conditions.
• New Collateral Requirements: Earlier this month, FERC approved ISO-NE’s request to increase collateral requirements for capacity market participants. A corporate liquidity assessment will categorize participants as low, medium and high risk, which will then determine the generators’ collateral requirements. This decision offers the ISO additional assurance that they will receive capacity market revenues even if participants default on non-performance penalties. This helps to minimize the risk of socializing the cost to ratepayers for generators defaulting on non-performance penalties.
• Interconnection Reform Delays: A widely-supported interconnection reform proposal submitted to FERC by ISO-NE in May 2024, if not approved shortly, may prevent up to 3 GW of generation from participating in the next capacity auction, says Flatiron Energy Development. The proposed rule changes would shift from a first-come, first-served cluster study review process to a first-ready, first-served process. Failing to revisit the rule changes may impact customers via higher capacity market clearing prices and lower resource adequacy to cover peak grid demand. FERC has until the end of March to finalize the rules in order to allow new generators time to prepare for the 2028 capacity auction.
• February 11th NEPOOL Markets Committee Meeting: At the NEPOOL Markets Committee Meeting on February 11th, ISO-NE introduced plans to separate the retirement process from its capacity market. Presently, generators inform the ISO of intended retirements approximately four years in advance through the capacity market. The proposed change of two years' notice would continue to offer sufficient insights into the economic factors behind retirement decisions and give time for markets to respond, while simultaneously avoiding generators from attempting to use the longer four-year notification window to seek out reliability retention contracts and manipulate market dynamics.

We will continue to monitor and notify of the situation as ISO-NE irons out capacity market changes.

Compliance Time: Big Apple and Beantown’s Buildings’ Emissions Rules Approach Year 1 of Compliance

• Boston and New York City have emerged as leaders in “greening up” the built environment, with their respective ordinances - Building Emissions Reduction and Disclosure Ordinance (BERDO) and Local Law 97 (LL97) - setting the pace for emissions reporting, carbon allowances for larger buildings, and compliance mechanisms.
• This year not only marks the beginning of mandatory compliance with emissions reduction standards, but recent updates to these ordinances showcases these cities’ appetite to commit even deeper to achieving their ambitious sustainability goals.
• This week, the Boston Zoning Commission approved a landmark amendment introducing Net Zero Carbon (NZC) Zoning to new building development projects that are filed after July 1, 2025. This amendment imposes decarbonization requirements on new constructions exceeding 15 units or 20,000 square feet, mandating net-zero emissions from their very first day of operation. This aligns with Boston's goal of achieving carbon neutrality by 2050, complementing the emissions reduction requirements already in place under BERDO.
• Also under this amendment, all new developments will be required to report on embodied carbon, with larger developments facing an additional requirement to conduct an embodied carbon life cycle analysis. Supporters of the amendment argue these measures are essential for evaluating the true environmental costs of new construction.
• Boston is the first US City to pass a NZC amendment of this caliber.
• In the Big Apple, New York City’s LL97 has also undergone recent changes. In December, the NYC Department of Buildings published its third rule package for LL97. One novel update is the creation of the Affordable Housing Reinvestment Fund. Building owners subject to LL97 now have the option to purchase carbon offsets through the Fund that funnels money into low-income housing electrification retrofits.
• In Cambridge, MA BUEDO will begin imposing emissions reduction requirements on large buildings starting next year, i.e., one year after Boston and New York. Buildings exceeding 100,000 square feet must cut emissions by 20% from their baseline by 2026, and 40% annually thereafter. This approach differs from Boston's BERDO, which instead establishes yearly maximum allowable emissions by building type, rather than mandating reductions from the building’s baseline.
• It is important for building owners to understand which ordinances they are subject to and what compliance pathways look like. For any building owner seeking  more information regarding Boston’s BERDO, Cambridge’s BUEDO, or NYC’s LL97, feel free to contact our expert team @ commodity@veolia.com. Our team provides consulting, auditing, and transactional support to assist in efficient compliance with these rules.  

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Federal Policy Update: Tariffs & Prioritization of Dispatchable Generation

• On February 1st, President Trump issued an executive order imposing a 25% across-the-board tariff on imports from Canada and Mexico and a 10% tariff on imports from China. There was also a carveout for a reduced tariff of 10% on energy related imports from Canada including oil, natural gas, electricity, coal, uranium, and critical minerals.
• The tariffs with Canada and Mexico were ultimately postponed by 1 month from their Feb 4 effective date due to temporary agreements with both countries, and while some predict that these tariffs may be postponed indefinitely, the uncertainty and risk remains.
• In a separate order this week, the President announced a new 25% tariff on all steel and aluminum imports, scheduled to begin on March 12. While some in the industry support these tariffs, many supply chain analysts worry this could have negative effects across the economy. Concerns surrounding higher inflation and unemployment as a result of these tariffs in areas like service and construction as well as potential retaliatory tariffs from large steel exporters are on analysts’ minds.      

Energy Impacts: 

• Gas imports from Canada accounted for 89% of supply mix to the Pacific Northwest in 2024, and 185% of total consumption, with most of the excess gas flowing downstream to Northern California.
• Hydropower makes up most of Canada’s electricity generation and power exports to the US, specifically to NYISO and ISO-NE, where it typically accounts for over ten percent of the generation mix. 

Q4 2024 - Variation In Wind Speed From Norm Weighted By Project (%)

• The 10% tariff could decrease demand for Canadian hydro-power due to its increased cost, pushing the nation away from an abundant clean energy source. The direct impacts to markets in New York and New England is somewhat difficult to discern; in most hours Canadian Hydroelectric power does not set the marginal clearing price and therefore may not impact regional prices much, however contracts with fixed price offtake may be directly affected.
• Consumers in the Pacific Northwest, New York, New England, Michigan, and Minnesota, all states and regions that import energy products from Canada, would concretely feel the effects of this tariff in their gas and electricity bills. While these regions would be the most impacted most significantly, increased demand for US gas in the Pacific Northwest could increase natural gas prices for consumers across the country.
• In terms of Mexico, the US consistently exports gas to Mexico, with US-Mexico flows averaging 6.4 Bcf/d in 2024, accounting for 73% of total consumption in Mexico. The proposed tariffs on Mexican imports will not heavily impact U.S. energy prices directly, but retaliatory tariffs from Mexico could be problematic for other pieces of the economy.

Push for Dispatchable Generation:

• The House and Senate are introducing legislation to give grid operators the ability to expedite essential projects to protect grid reliability.
• Under the GRID Power Act, FERC would have 60 days to review proposals from regional transmission organizations and independent system operators for specific “dispatchable generation” projects that would be pushed to the head of interconnection queues. This is in an effort to speed up the approval process for large thermal plants, which may be necessary for reliability but are often delayed due to review timelines and interconnection backlogs resulting from smaller projects.
• DOE Secretary Chris Wright announced in his first Secretarial Order that there will be a focus on growing baseload and dispatchable generation, implying the aforementioned legislation will be used to accelerate projects regarding dispatchable power and nuclear, rather than intermittent renewable generation, specifically wind and solar.
• Specifically, the order states that the DOE plans to focus on fossil fuels, advanced nuclear, geothermal and hydropower, which are considered “affordable, reliable, and secure energy technologies” by Secretary Wright.

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Market Data

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