Energy Markets Update
In this newsletter, we cover key factors impacting US energy markets. This week, we report on this year's rise of emergency orders relating to energy, WTI curves and what they show us about oil markets, Meta's big new nuclear deal, and the daunting potential phase-outs of investment tax credits affecting the renewable market right now.
Table of Contents
Weekly Natural Gas Inventories
Source: EIA
Source: EIA
Market Update
- North American energy markets continue to balance competing trends of weak demand in the short term, looming summer heat, and concerns over fundamental undersupply in 2026 and beyond. A couple key trends are catching our attention recently:
- NYMEX gas calendar year strips from 2026 through 2028 are all up between 5-8% from levels largely unchanged between September 2024 and April 2025 of this year – the market is pricing in these longer term supply concerns and it may be difficult to shake them without more sustained data to the contrary.
- The gas storage position remains robust, for the moment. In fact, the nation is storing away gas at a record pace for this time of year and inventories are slightly above the 5-year average. End of year inventory projections now top 3.8 Tcf, historically a comfortable threshold going into winter.
- Spot prices are surprisingly low, with gulf coast points settling below $3.00 per MMbtu and many Marcellus production regions (Mid-Atlantic) settling below $2.00 over the past week.
- The NYMEX prompt month is currently trading around $3.70 and the January 2026 contract still remains above $5.00 per MMBtu.
- In summary, the spread between spot and future is substantial. This is a hard sell to buyers who may prefer fixed rates, but not at 50%+ premium to spot. It’s hard to argue against sitting on one’s hands right now as storage remains robust and no immediate concerns loom on the horizon.
- The counterpoint is that low prices in the present could simply fulfil the prophecy of higher prices in 2026 and 2027. As the saying goes “the cure for low prices is low prices”.
More Power Captain! DOE's Use of Emergency Authority
In recent weeks, the Department of Energy (DOE) has shown an increased willingness to use the Federal Power Act to issue emergency orders in an effort to keep retiring power plants online. Although the DOE has issued emergency orders in the past, they have typically been used to respond to extreme weather conditions. These new orders fall in line with the National Energy Emergency declared on January 20 and signal a shift in the use of federal authority to mitigate the potential for generation shortfall.
- In 2021, a plan was put in action to retire the J.H. Campbell Power Plant in Michigan. The coal-fired plant was set to retire in order to end coal use in the state by 2025 and shift towards 100% carbon-free power by 2040. On May 23rd, just 8 days before the planned retirement, DOE issued an emergency order to keep the plant online, prioritizing the minimization of “any potential generation shortfall that could lead to unnecessary power outages”.
- A week later, the DOE issued another emergency order to PJM Interconnection to keep the 820 MW Eddystone Generation Station in Pennsylvania operating. This plant, which uses natural gas- and oil-fired power generation, was also set to retire at the end of May. The DOE cited the same reasoning for keeping the PA plant online.
- While there is always cause for concern when a significant source of power generation is retired, the ISO or RTO for a region will typically manage these transitions, sometimes instituting “reliability must run” contracts as a temporary measure. Last month, NYISO decided to keep two of their natural gas- and oil-fired peaker plants in operation after a study found that taking them offline would lead to periodic power deficiencies. The issue will be reevaluated once the 1,250 MW Champlain Hudson Power Express (CHPE) transmission project comes online next year.
- In the past, the DOE would typically issue emergency orders in response to extreme weather events or transmission outages to limit energy supply disruptions that threaten the health and safety of the population. They were used during Hurricanes Milton, Laura, Ike, and Katrina as well as for extreme heat waves and cold snaps in California and Texas.
- The recent emergency orders demonstrate a shift with federal power being used to pre-empt the authority of the ISOs and RTOs and to address potential shortfalls. While maintenance of the power plants in question may not constitute an immediate “emergency”, many of RTOs are indeed facing capacity shortfalls in the coming years and this will come as a relief for many grid operators. All else being equal, keeping these plants online does address these concerns and will likely have a mitigating impact on escalating energy and capacity prices. The political and environmental consequences are more nuanced. There is little doubt that the orders prioritize domestic fossil resources over intermittent wind and solar, but they are largely consistent with The President’s EOs on January 20 and April 8, “It is further the policy of the United States that in order to ensure adequate and reliable electric generation in America, to meet growing electricity demand, and to address the national emergency declared pursuant to Executive Order 14156 of January 20, 2025 (Declaring a National Energy Emergency), our electric grid must utilize all available power generation resources, particularly those secure, redundant fuel supplies that are capable of extended operations.”
Crude Awakening, WTI futures prices continue to move lower
2025's flip to contango has turned oil markets around, as traders opt to store rather than sell. This shift from last year's tight market signals a new chapter in crude oil trading, where storage is king and immediate sales take a backseat. With some traders scrambling to adapt to ~$60/bbl, the oil market's traditional playbook is being rewritten in 2025. We’ll be sure to include and define some commonly used industry terminology as we go.
- The Permian Basin spans ~86,000 square miles of western Texas and southeastern New Mexico and is the primary source of WTI (West Texas Intermediate) crude production. This region's light, sweet (lower sulfur) crude is particularly valuable for transportation fuels, making it a crucial benchmark for North American oil markets. The strategic location of Cushing, OK as the NYMEX WTI futures delivery point has established this system as a fundamental pillar of global oil trading (see map below).
Map of US Crude Oil and Natural Gas Plays
- Historical market dynamics typically favored contango pricing (future prices exceeded spot prices). The contango market structure was particularly beneficial for storage operators and integrated oil companies, who could capitalize on the price differential between current and future prices.
- By mid-2024, both WTI and Brent (used to set prices for oil sales in Europe, Africa, and the Middle East) markets showed strong backwardation (when the current (spot) price of oil or energy is higher than future prices) with prompt month (the closest contract month for futures trading) prices averaging a $0.42-0.46/barrel premium over future months.
- This reflected tight supplies and robust near-term demand, particularly in transportation fuels. The backwardation was driven by post-pandemic recovery, supply chain constraints, and geopolitical tensions affecting global oil supply. OPEC+ (Organization of the Petroleum Exporting Countries) production discipline and growing Asian demand further supported this market structure, making immediate delivery more valuable than future delivery.
- In the first two quarters of 2025 the both curves flipped to contango (see comparison for June 2024 to June 2025 below). This transition signaled easing supply constraints and growing inventory levels in OECD nations. The change was particularly significant as it represented a fundamental shift in market dynamics, influenced by macroeconomic factors, technological advancements in production, and evolving energy transition policies. Storage facilities began filling up as traders took advantage of the price structure, leading to increased inventory levels across major trading hubs.
Source: S&P Capital IQ, Oil & Refined Products Futures 6.5.2025
- OPEC's decision to increase production by more than 400,000 barrels per day, with Morgan Stanley forecasting a 2.2 million barrel per day boost by October, contributed to the market's structural shift. Russian resistance to production increases added market complexity, as did recent escalations in the Russian / Ukraine conflict that muted calls for a near-term ceasefire. The tepid production increase came amid changing global demand patterns and technological advancements in non-OPEC production, particularly in US shale. The interplay between OPEC+ decisions and US production capabilities created new dynamics in global oil price formation.
- The market transformation reflects sweeping changes across the global energy landscape, from ambitious transition policies to breakthrough production technologies and shifting consumption patterns. As energy firms recalibrate their investment strategies in response to these dynamics, the full impact of these changes remains to be seen. Veolia’s commodity analysts will continue studying and reporting on these developments and their implications for oil infrastructure and trading operations in the months ahead.
Going Nuclear: Meta Signs PPA with Constellation’s Clinton Power Station
This week Meta entered a 20-year Power Purchase Agreement (PPA) with Constellation for the full output of its Clinton Power Station nuclear plant. This marks Constellation’s second long term corporate PPA with a tech giant for the rights to its nuclear power generation in the last 10 months.
- The PPA with Meta is scheduled to begin in June 2027 as the Illinois ratepayer funded Zero Emission Credit Program (ZEC) expires. Illinois’ ZEC program was established through its Future Energy Jobs Act in 2017 and allowed Clinton Power Station to postpone its retirement through 2027.
- In addition to the postponement of retirement, the PPA with Meta commits Clinton Power Station to increase its output by 30 MW to a capacity of 1090 MW.
- The plant became operational in 1987 and currently has a request for a 20-year license extension pending with the Nuclear Regulatory Commission. We covered a similar 20 year extension requested for California’s Diablo Canyon in a past newsletter back in 2023.
- In September 2024, Microsoft announced its signing of a PPA with Constellation’s Three Mile Island nuclear plant, incentivizing the restart of the plant’s Unit 1 generator.
- Both of the PPAs signed with Constellation’s nuclear assets include the passing on of environmental attributes associated with the contracted capacity onto the data center operators.
- The recent trend of tech companies purchasing electricity from nuclear plants to appease growing data center demand was kicked off by Amazon Web Services in March 2024. The deal between Talen Energy Corp.’s Susquehanna nuclear plant and Amazon was for the physical delivery of additional capacity from the nuclear plant. In November 2024, the Federal Energy Regulatory Commission struck the deal down due to concerns with the proposals impact on PJM’s grid reliability.
ITC Phase-Out
In our previous newsletter, “The End of an IRA?,” we covered pending threats to the Investment Tax Credit (ITC) and the Production Tax Credit (PTC), which are slated to sunset in the House Republicans’ budget bill. The Senate has already begun its review this week with an ambitious deadline of July 4th.
Source: S&P Global
- The table above outlines the newer adjustments the House GOP made to tax credits related to energy in their recent reconciliation bill. These revisions establish stricter deadlines and penalties for these credits compared to the initially projected sunset phase-out of the IRA’s provisions.
- The current version proposes that all projects aiming for eligibility for the tech-neutral production tax credit must be in service by 2029 OR commence construction within 60 days of the bill being passed. Renewable energy developers are calling this window “largely unworkable.” With construction timelines for utility scale solar projects often taking as much as 2 years, including site preparation, this implies that many early stage projects will already face some difficult decisions.
- Builders of utility-scale photovoltaic facilities brought online about 5.7 GW of capacity in the first three months of 2025, making the cumulative installed PV power plant capacity in the US to about 137 GW. Through 2029, another 251 GW is planned to enter operation, including 36.2 GW under construction and 8.7 GW in advanced development.
- The likely result of the change will be a frantic rush to finalize PPAs and commence construction. For projects that are reasonably well situated, this will give them some short term pricing power. It will invariably have implications for contractual language, which should now have clear contingencies in place for projects that fail to the safe harbor deadlines.
- The projected rise in U.S. energy demand and tightening project eligibility restrictions will likely spur homeowners and project developers, both small and large-scale, to accelerate timelines to beat impending deadlines. This rush to initiate projects may strain interconnectivity and introduce market instability in the solar industry, characterized by rapid growth followed by a downturn.
- Some are also fearful that the language used in the most recent version of the bill could make acquiring power purchase agreements (PPAs) exceedingly difficult given the absence of tax credits and transferability leading to higher financing costs that would ultimately be passed on to customers.
- Tax benefit transferability has already had a transformative impact on the financing of both generation and manufacturing projects as it simplifies tax credit transactions and makes them available to a much wider pool of investors, including smaller companies.
Source: American Council on Renewable Energy
- A survey of investors and developers by the American Council on Renewable Energy showed that 84% of investors and 73% of developers would decrease their activity if the Inflation Reduction Act is not preserved in its current form.
- The same survey reported that a full repeal of the IRA could create up to $80 billion in energy investment opportunities in other countries because any announced projects and 50% of projects under construction could be canceled, leading manufacturers to likely seek to meet global demand through factories abroad. Repeal of the IRA could cost the U.S. up to $50 billion in lost exports of solar modules and battery cells alone through the loss of domestic manufacturing.
- Maintaining a diverse energy portfolio, including nuclear, fossil fuels, hydro, and renewables, mitigates the risk of monopolistic practices that inflate prices and safeguards against physical and cyber threats, and provides hundreds of thousands of jobs in the United States. The current Senate review has many of us on the edge of our seats knowing this decision could have far-reaching implications regarding the fate of renewable energy in the United States.
Market Data
NYMEX Final Settlement
Forward Capacity Prices
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