Energy Markets Update
Weekly natural gas inventories
The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 268 Bcf. The five-year average withdrawal for January is about 158 Bcf. Total U.S. natural gas in storage stood at 2,323 Bcf last week, 14.5% less than last year and 5.8% lower than the five-year average.
Winter weather drives energy prices to new highs
On January 27, the NYMEX Henry Hub February contract rocketed almost $2 to 6.26/MMBtu, thereby setting the “last day settlement” price for February delivered gas for many financial and physical contracts. This was the largest daily jump in history for Henry Hub forwards. Every month until April 2023 remains above $4.
NYMEX Prompt Month Trading, CME Group
There are a number of important drivers but all can be summarized by weather and trading patterns germane to the US gas market. On the same day, January 27, the EIA published that US natural gas storage fields withdrew a total of 219 BCF in the week prior, the second 200-plus natural gas pull in a row. This was 5 Bcf higher than the 214 expected by an S&P Global Platts survey of analysts. It was the largest draw of the winter and marked the 4th consecutive week of increasing withdrawals. The market is still trending towards increasing withdrawals, and could even approach 300 Bcf in the weeks to come (note today at 268 bcf).
The trickle of bullish news and then the release date of the last storage report was particularly bad timing for the market. The vast majority of monthly trading occurs in the final days of the month as physical suppliers secure their positions for the next month of flow and financial entities roll over their positions – a lot of gas purchased on the “last day settle” which occurs 3 business days before the close of a month. While average daily price settlement of NYMEX will likely be more moderate in February, the mechanics of the last day settlement in US gas markets have long been prone to wild price swings.
While the market is certainly tighter than it was last year, from a storage perspective it does not in our opinion justify such short term volatility. However, we have previously advised that there is more price risk and risk to physical storage integrity next year, particularly in Q1 2023.
Spot gas prices also shifted wildly last week as a winter storm slammed much of the northeast. Algonquin city-gates peaked at $27.95/MMbtu on Jan. 28th, and Iroquois Zone 1 and Dracut (Mass) both cleared over $30/MMBtu. Even the Appalachian and Southeast saw increases, with many locations surging more than $1/MMBtu over the storm period. As goes gas, so follows power; spot power prices in these regions were also notably higher in January.
Corporate renewable energy deals soared in 2021
Corporations bought a record high amount of renewable energy in 2021 as global pressure mounted to cut down carbon emissions.
Power producers sold 31.1 GW of renewable based energy to companies independent of the electric industry, surpassing the record set last year at 25 GW. The deals now account for more than 10% of globally added capacity added in 2021, displaying the large impact the corporate sustainability initiatives.
Major tech companies like Amazon and Google have created green initiatives to cut down on their carbon footprint. Google and Amazon have both pledged to become carbon neutral by 2030, the same year Microsoft plans to be carbon negative. Much of this comes as the tech sector tries to better its image in the public eye along with gaining potential tax incentives.
Both Green e-recs and other voluntary products have been on the rise over the past 12 months. Many buyers who typically rely on voluntary credits have started turning to the PPA market for long term price certainty. Due to the increase in voluntary RECs, many buyers would also rather buy from a new project to maintian additionality claims.
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