Energy Markets Update 

Weekly natural gas inventories

The U.S. Energy Information Administration reported last week that natural gas in storage decreased by 124 Bcf. The five-year average withdrawal for March is about 59 Bcf. Total U.S. natural gas in storage stood at 1,519 Bcf last week, 15.6% less than last year and 16% lower than the five-year average.

Russia-Ukraine war: Biden bans all imports of oil and gas from Russia

• The move is mostly symbolic as the US is not dependent on Russia for its energy supplies; only 3 percent of US crude comes from Russian and no gas is imported 
• European nations rely heavily on Russian oil and gas for a large share of needs and therefore, it seems unlikely that most of Europe will follow US’ lead
• Despite the 3% figure, spot sales of Russian crude do provide physical delivery efficiencies and although Russian cargoes will likely be diverted to other buyers -- be them in Europe or China & India -- this rebalancing of the oil market is making oil prices rise globally
• Russia retaliated by promising to ban raw material exports (list TBD) to sanctioning countries
• Russia is also a key supplier of nickel and fertilizer. Both Russia and Ukraine supply 30% of the world’s grain so there are real concerns about food scarcity in some parts of the world, in addition to significant inflationary drivers

Russia-Ukraine war: North American energy markets

• North American power and gas buyers are somewhat insulated from energy price shocks that will ripple through oil and gasoline markets in the coming weeks. US natural gas is ultimately a strong domestic industry. The chart below shows how US benchmark prices at NYMEX Henry Hub compare to global LNG prices
• However, markets were trading at multi-year highs even before the Russian invasion due to tightness in these markets so we can expect that prices may remain “sticky” at currently inflated levels – price in 2022 and 2023 will be materially higher than in recent years. Best case scenario is a strong investment response by US oil and gas drillers, which could add incremental capcaity in 8+ months time
• We see broader incremental commodity risk associated with baseline inflationary pressures, mostly originating from oil and agriculture sectors
• Reach out to your energy advisor to discuss region specific strategies

New England ISO releases forward capacity auction results

• After a several week wait due to uncertainty surrounding the Killingly Energy Center, ISO-NE has released the forward capacity auction results for the 2025/2026 forward year
• Most of the region's load in Eastern MA and RI will pay $2.639 per kW-month, an extremely low price.  
• Resources totaling 38,602 MW, including 33,356 MW of existing capacity and 5,246 MW of new capacity from 302 new resources, qualified to participate in FCA 16
• The auction ensures capacity supplies three years in advance to guarantee it has enough resources to provide electricity in New England
• New and existing solar, wind, storage and demand resources totaling nearly 5,000 MW cleared the auction
• Prices in ISO-NE's northern region elevated to $2.53/kW-month from $2.48/kW-month and prices in the remaining areas, which covers Connecticut and western/central Massachusetts, dropped to $2.59/kW-month from $2.61/kW-month

Biden's plan to domesticate the clean energy supply chain begins to deliver

• Biden’s efforts to stimulate domestic miner production is finding early success
• In February 2021, Biden signed an executive order on supply chains prompting multiple federal agencies to review critical mineral, battery, and semiconductor supply chains 
• Demand for several rare minerals is expected to grow given their importance to decarbonizing energy and transportation, and native production is now incrementally critical given the risks associated with Russian and Ukrainian supplies 
• By 2040, demand for rare earth elements could be up to 7 times its current level
• The Biden administration would also like to rely less on China which processes 90% of the world's rare earth elements 
• Still, several mining companies have faced hefty regulatory overhead as well as local opposition to the extraction of environmental grounds

PJM urges New Jersey to tread carefully with CO2 rule for power plants

• The NJ Department of Environmental Protection’s proposed rule would impose emissions rate limitations on generators over 25 MW
• Affected generators would need to meet emission limits of 1,700 lbs CO2/MWh by 2024, 1,300 lbs CO2/MWh by 2027 and 1,000 lbs CO2/MWh by 2035 – regardless of the quantity of energy produced
• PJM Interconnection (i.e., grid operator) asked New Jersey regulators to account for the grid operator's capacity market timeline and broader reliability concerns
• PJM recommended that the NJDEP use June 1 as the regulation deadline so that it aligns with the grid operator's planning period. Currently, the rules will take effect January 1st.
• PJM asked the NJDEP to be "cognizant of the fact" that major transmission upgrades may be needed if many generational facilities retire due to the new rules
• Around 83% of CO2 emissions from the state’s electricity sphere come from natural gas-fired power plants

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