Weekly Power Outlet US - Week 19

Since natural gas is the main driver in US electricity prices, we usually mention the weekly EIA storage report which gives insight into the build of natural gas as we head into summer and winter. While not the only factor, the level of storage (thus supply) does tend to be a leading indicator of prices. Instead of trying to put into words where we are now, we thought maybe a couple of charts from EIA might tell the story. Below are charts of US and European storage. As a reminder, the narrative a year ago was that European gas supply was going to be strained heading into winter after Russia was cut off. Looking at the first chart, the US was below trend with its own supply as it was simultaneously being counted on to help supply Europe with LNG. Looking at the second chart, it shows the precarious position Europe was facing as they were well below trend as Russia was cut. This combination drove natural gas pricing last spring well above $6-7/MMBtu and electricity followed with On-peak Calendar strips in most ISOs well above $100.

As we head into this summer, the picture is a mirror image of last year. Again, looking at the charts below, instead of storage levels being well below trend, both Europe and the US are currently well above trend and looking to set 5-year highs. A historically warm winter in Europe and a Berlin airlift-like effort to get LNG to Europe in the second half of last year has contributed to the current market levels. As it stands now, any attempt of a natural gas rally is met with the facts presented in the charts below.

This week, Energy Secretary Jennifer Granholm testified before the House Committee on Energy and Commerce. Presented was the $52 billion budget request for the Department of Energy. $52 billion represents an increase of $6 billion from last year. Included is a link to read the full text laying out some of the spending. While we aren't going to comment on the items contained, given the above commentary, we do appreciate this:

Those that have followed our readings for a while may remember when we were on a weekly roll with folks from NERC, FERC, and ISOs all warning for coming reliability issues facing the grid. Last week, FERC was in front of the Senate Energy and Natural Resources committee delivering this message again. The conversation was pretty much the same with concern for grid reliability with baseload generation being retired at a faster pace than replacement is being built. What caught our eye was the descriptive language used by some of the commissioners. Comments like "looming reliability crisis," "catastrophic situation in terms of reliability," and "unprecedented challenges." These comments may seem extreme, but we might be at the point where extreme language is needed.

NOAA WEATHER FORCAST

DAY-AHEAD LMP PRICING & SELECT FUTURES

Electricity strip On-Peak pricing has come back to the $50 support level. To us, the market has removed some of the risk premium it had been hanging onto and is now reflecting the gas market. This level is key.

DAILY RTO LOAD PROFILES

COMMODITIES PRICING

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