Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage increased by 92 Bcf. There was an injection for the same week last year of 41 Bcf while the five-year average injection is 69 Bcf. Total U.S. natural gas in storage stood at 3,461 Bcf last week, 11.7% less than last year and 4.2% lower than the five-year average for this time of year.
NOAA's Winter Weather Outlook
Climate experts at the National Oceanic and Atmospheric Administration have released their preliminary winter forecast for North America and the most relevant component is continued presence of La Niña. In this winter outlook for the 2021-22 season, La Niña conditions start to take hold for the second year straight, yet Jon Gottschalck, chief of NOAA’s operational prediction branch, stated that this outlook is based on probability and “other outcomes are possible, just less likely.”
With temperature being the most relevant for energy markets, NOAA is forecasting a warmer than average winter for much of the country. The South and the Gulf Coast have the strongest probability of a warmer-than-usual winter. The Southwest, much of the Midwest and the Northeast can also expect a warmer winter. The Pacific Northwest, Montana and the western half of the Dakotas are likely to see a colder-than-average winter, while Northern California, Wyoming and Minnesota look like they will see normal temperatures.
Generally this should be regarded as a bearish indicator for North American energy markets, which are currently in the midst of a historic bull run. Warmer than average temperatures across the eastern US would keep a lid on heating demand and should otherwise dampen prices increases.
In terms of precipitation, the Pacific Northwest and Great Lakes region are most likely to see a wetter-than-average winter this year. The Northern Rockies, parts of New York, Ohio, Kentucky, West Virginia and Missouri may also see more precipitation. The southern half of the country is looking at drier conditions, especially the Southwest, Florida and southern Georgia, and the rest of the country should expect an average amount of rain or snow. According to NOAA staff, this precipitation forecast has a lot do with La Niña, which has already started to settle in.
Higher rainfall expectations in the Pacific Northwest are a welcome sign to improving drought conditions and replenishing hydroelectric reservoirs. Indeed, California has just over the past week received bountiful and timely rainfall, promising to help alleviate wildfire and drought across the region. However, California is split into two by a La Niña pattern, bringing more rain to Northern California and below-normal precipitation to Southern California; therefore it’s hard to predict exactly where that line will fall.
Energy Giants Battle it out over Clean Transmission Ballot Initiative
Five power companies — Avangrid, Hydro-Québec, NextEra Energy Resources, Calpine and Vistra — have spent $96.3 million trying to convince Maine residents how to vote next week on a ballot initiative that could kill the New England Clean Energy Connect (NECEC) project, a high voltage power line designed to deliver Canadian hydroelectric power to Massachusetts utilities, a pivotal component to the Commonwealth’s carbon mitigation strategy.
NECEC would be a 320-kV, direct-current transmission line with a capacity of 1,200 megawatts, enough energy to run roughly 1 million homes. It would carry energy from Quebec to an alternate-current converter station in Lewiston, ME where it would tie into the New England electric grid. It’s being built largely for the benefit of Massachusetts electric customers, who will ultimately pay the $1 billion cost. The 145-mile route is on land owned or controlled by utility Central Maine Power (CMP), except for a one-mile patch through Maine public lands near The Forks. Two-thirds of the route follows existing CMP power line corridors, some of which are being widened up to 75 feet to accommodate another set of poles. A 53-mile stretch between The Forks and the Quebec border bisects undeveloped commercial forest. The area has been logged for generations but has high-value qualities for wildlife, recreation and biodiversity. Permits require the power corridor in this section to be no more than 54 feet wide. Fewer than 1,000 acres are being cleared in total for the project.
The NECEC line bares financial incentives for various regional energy companies. For CMP owner Avangrid, the investment would equal nearly 10% of the $10.9 billion ratebase of its eight Northeast utilities. Avandgrid and Hydro-Québec have contributed over $60 million to efforts to defeat the ballot initiative. Avangrid has already spent about $350 million on predevelopment of the project, which it plans to bring into service in 2023, according to the company's most recent quarterly filing with the Securities and Exchange Commission. If the line isn't built, Avangrid would likely have to write off at least some of its NECEC expenditures.
On the other hand, three large power generators in New England—Florida-based NextEra Energy Resources, Texas-based Vistra Energy Corp., and Calpine Corp.—oppose the project because it would suppress energy and capacity prices in the region, thereby putting a dent in their future revenue. NextEra has been the largest spender of the lot, donating $20 million spent to convince Mainers to say “no” to the project, including support for “grassroots” organizations such as Mainers for Local Power.
NextEra appears to be pulling other levels to protect its interests in New England. It has recently been accused by FERC, amongst others, of stalling the replacement of a circuit breaker at its Seabrook Nuclear Station in New Hampshire—the largest generator in the region—which is necessary for NECEC to safely connect to the grid. Avandgrid has already agreed to pay for the upgrade and is accusing NextEra of attempting to block the work. FERC is planning to hold hearings on the issue, although no date has been set.
Regardless of the outcome of next week’s ballot initiative, challenges to NECEC’s permits issued by the Maine Department of Environmental Protection and U.S. Army Corps of Engineers promise to inject many months – if not years – of uncertainty into the future of one of the state’s most divisive energy proposals.
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