Q1 2020

The RealPage® Energy Outlook

A quarterly publication providing detailed information on the forces that affect your energy rates.

About the Energy Outlook

Get the details on pricing trends, weather, storage levels, tariffs and more.

The Energy Outlook is designed to inform you about the current state of the natural gas and electric energy markets. While prices are most important, we offer insights into the drivers of the energy markets and shed some light on how these drivers impact market prices. The primary energy market drivers fall into 2 areas: Fundamentals and Politics.

  • Fundamentals are the factors influencing energy supply and demand of electricity and natural gas. Supply factors include power generation, natural gas production (drilling rigs, fracking, and horizontal boring), underground gas storage, and pipeline capacity. Demand factors include consumer usage and weather (driving how much energy is required for heating and air conditioning seasons).
  • Politics include changes to the legal and regulatory environment that can cause major moves in energy prices. Political impacts can be new emission standards, such as mandated movement to cleaner generation facilities with higher operating costs, new energy taxes or fees, and restrictions on new pipeline or transmission line placement. Political factors can be domestic or international.

Q1 Outlook

Long-Term Natural Gas Prices Remain Attractive

U.S. dry natural gas production set a new record in 2019, averaging 92.0 billion cubic feet per day (Bcf/d). EIA forecasts dry natural gas production will rise to 94.7 Bcf/d in 2020 and then decline to 94.1 Bcf/d in 2021. Production in the Appalachian region drives the forecast as it shifts from growth in 2020 to declining production in 2021.

Natural Gas Storage

Storage Surplus Continues to Grow

Natural Gas Chart

The Energy Information Administration (EIA) “Natural Gas Storage Report” shows working gas in storage was 2,609 Bcf as of Friday, January 31, 2020, according to EIA estimates. This represents a net decrease of 137 Bcf from the previous week. Stocks were 615 Bcf higher than last year at this time and 199 Bcf above the five-year average of 2,410 Bcf. At 2,609 Bcf, total working gas is within the five-year historical range.

Natural Gas Storage Levels (Bcf)
Current Storage Level 2,609
Storage – One Year Ago 1,994
5-Year Average Level 2,410
Natural Gas Chart

The average rate of withdrawal from storage is 14% lower than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawal from storage matched the five-year average of 12.8 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,890 Bcf on March 31, which is 193 Bcf higher than the five-year average of 1,697 Bcf for that time of year.

Weather Forecast

NOAA Predicts a Warm Winter

The NOAA weather service is predicting a high probability of above-average temperatures across much of the country.

NOAA Heat Map

Energy Prices

Near-Term Prices Are Up – Long-Term Are Flat

The Energy Outlook mainly focuses on natural gas prices because gas prices directly correlate with electricity prices. As natural gas prices increase or decrease, electricity prices often follow suit – but hours, days or weeks later. Also, natural gas has a national price established on the NYMEX. Other regional prices and markets do exist but are compared with the NYMEX prices. The electricity market is different because the U.S. is divided into 6 regional electric markets, each setting its own price and having its unique market rules. All six regions tend to move in the same direction, but price volatility and generation vary considerably between regions.

Currently 12-month strip prices are at $2.147. Spot prices have averaged $1.85/MMBtu; the second-lowest average since May 27, 2016.

Energy Price Graph

Global Outlook

Coronavirus Adds to Pressure for U.S. Oil Industry

By Clifford Krauss

At a time when they are already cutting jobs and weighed down by debt, American oil producers are bracing for the latest shock to hit world energy markets: the economic effects of the Coronavirus outbreak in China and beyond.

China procures only about 200,000 barrels a day of oil and refined transportation fuels from the United States, out of 8.5 million barrels of total daily American exports. But oil is a global commodity, and benchmark prices are set on world markets, not domestically. Lower prices mean lower profits.

“It’s a blow,” said Steven Pruett, chief executive of Elevation Resources, a Texas oil company, “Especially when you add this to the fact that we’re getting almost nothing for our natural gas, and oil prices are sliding from $55 a barrel to $50. Credit availability is already tight, and it’s going to get that much tighter.” Those concerns reflect the growing influence that China exerts on international energy markets.

Just a few weeks after the outbreak of the virus, daily Chinese oil demand is already down 20 percent because of dwindling air travel, road transportation and manufacturing. Since China consumes 13 of every 100 barrels of oil the world produces, every oil company is being hit to some extent.

More than 50 million people are affected by a travel lockdown in Hubei Province, the center of the outbreak, slowing gasoline consumption, while international airlines are rapidly scaling back flights, leaving a glut of jet fuel and diesel on global markets at a time when petroleum supplies were already abundant and prices depressed.

For producers in places like Iraq and Saudi Arabia, that kind of price drop can mean a 10 percent loss in profits. But in the United States, where the break-even price for the average oil well drilled in shale fields is far higher at roughly $45 a barrel, some producers could lose as much as 60 percent of their profits, according to Michael Lynch, president of Strategic Energy and Economic Research.

“The big question is whether the Saudis will put oil in storage and wait to ride this out; and if not, everyone is going to see less money coming in,” said Mr. Lynch, who has advised OPEC in the past. “For the big guys like Exxon Mobil and Chevron, it’s not a big deal. But for the small guys, they are going to be hurting, and you could see the number of bankruptcies rise sharply in the next few weeks.”

Forty-two oil and gas companies filed for bankruptcy protection in North America last year; since oil prices plummeted in 2015, there have been 208 bankruptcy filings by producers, involving roughly $122 billion in aggregate debt, according to the Haynes and Boone law firm.

Oil prices have fallen despite the loss of up to one million barrels a day of Libyan exports because of political turmoil there. A hastily convened meeting of the Organization of the Petroleum Exporting Countries and Russia, a possible prelude to a production cut, helped to stem the price slide, perhaps only temporarily.

“There’s still too much uncertainty on the virus spread and its consequences on the economy,” said Claudio Galimberti, head of demand and refining analytics at S&P Global Platts.

Analysts point to the SARS epidemic of 2002-2003 for clues. Asian jet fuel demand fell by 1 percent in 2003 from the year before, after climbing an average of 7 percent per year during the prior 5 years, according to Citigroup Global Markets research. Demand snapped back powerfully in 2004, and otherwise the impact on global oil markets was short-lived and modest.

But China has become a much more important engine to the world economy over the last 17 years, and medical researchers cannot be sure that the new virus will fade during warmer weather like the flu.

The Chinese virus is spreading as oil producers are preparing their 2020 exploration and production budgets, which they will announce over the next 2 months. When the year began, oil prices had stabilized between $60 and $65 a barrel after cuts in OPEC production targets. But with prices now roughly $10 lower, executives predict that the industry will have to adjust.

“People are going to have to drop rigs and scale back production growth,” said Scott D. Sheffield, chief executive of Pioneer Natural Resources, a major Texas shale oil producer. “The question is, how fast can the Chinese stop the virus from spreading and start picking up oil demand.”

Mr. Sheffield predicted that if oil prices did not go up soon, domestic shale oil production, recently expected to increase by 500,000 to 700,000 barrels a day this year, instead would be flat.

Other countries will come under pressure, too. Most of the 10 million barrels a day that China imports come from Russia, Africa and Iran and other Persian Gulf nations, and producers in those regions have already been forced to sharply discount their shipments.

Full article can be found here: https://www.nytimes.com/2020/02/04/us/oil-coronavirus.html

Regional Outlook

Energy markets are complex, with many regional markets. The regional markets may differ from the overall continental energy outlook.

New England’s Forward Capacity Auction Closes with Adequate Power System Resources for 2023-2024

New England’s annual capacity auction for power system resources concluded February 3, 2020, with sufficient resources to meet peak demand in 2023-2024, and preliminary results indicate the clearing price was the lowest in the auction’s history. ISO New England Inc. runs the auction to procure the resources needed to meet consumer demand for electricity in 3 years.

The 14th Forward Capacity Market (FCM) primary auction (FCA #14) closed at a preliminary clearing price of $2.00 per kilowatt-month (kW-month) across New England, compared to $3.80/kW-month in last year’s auction.

“New England’s competitive wholesale electricity markets are producing record low prices, delivering unmistakable economic benefits for consumers in the six-state region,” said Robert Ethier, Vice President for system planning at ISO New England.

PJM Releases 2020 Long-Term Load Forecast Report

Compared to the 2019 Load Report, the new forecast reflects a reduction in the summer peak of -1.9 percent (or -2,778 MW) in 2020. This downward summer trend tapers to -0.6 percent, or a reduction of 956 MW in the 2023 RPM auction year, and a reduction of -0.4 percent, or 673 MW in 2025, compared to the 2019 Load Report.

In contrast, winter load in 2020 is expected to rise 0.1 percent, or 139 MW, compared to the 2019 Load Report.

Across the entire PJM region, net energy for load growth is projected to average 0.7 percent annually over the next 10-year period. The total PJM energy is forecasted to be 839,830 GWh in 2030, a 10-year increase of 56,875 GWh.

New York Must Pursue Power Grid of Future

The wide-ranging remarks focused on every aspect of the NYISO’s business and its role in managing New York’s bulk electricity grid and wholesale energy markets, as the state works to meet the aggressive requirements laid out in the Climate Leadership and Community Protection Act (CLCPA):

  • Integrating Carbon Pricing into the markets as the most efficient, immediate and effective means to pursue the state’s public policy goals for clean energy production detailed in the CLCPA
  • Energy and ancillary services design enhancements to promote system flexibility
  • Improving the resource adequacy model to better align compensation with performance given the changing power grid
  • Comprehensive Mitigation Review: NYISO is actively engaging stakeholders to conduct a comprehensive review of NYISO market rules aimed at maintaining competitive market structures that will continue to support reliability, efficiency, and the transitioning grid
  • Congestion Assessment and Resource Integration Study (CARIS), which will include a scenario to evaluate moving to 70% renewable energy by 2030; the study will identify opportunities for transmission investment to un-bottle renewable energy to enable the state’s renewable energy production goals
  • Reliability Needs Assessment, which will include assessments of planned facility additions, modifications, and retirements through 2030 to identify any reliability needs that may arise
  • Climate Change Study, which will build upon recently completed work to consider the growth in load resulting from the projected electrification of the transportation and heating sectors and evaluate potential changes in the resource mix

California ISO Records Banner Year for Renewables Integration

The electric grid managed by the California Independent System Operator (ISO) delivered record-breaking amounts of solar and wind energy in 2019, according to the company’s 2019 Statistics fact sheet posted today.

Some highlights of the fact sheet include:

  • A historical peak of 80.3% of renewables serving demand on May 15
  • A peak demand for electricity of 44,301 megawatts (MW) on Aug. 15
  • Historic solar generation peak of 11,473 MW on July 2
  • Historic wind generation peak of 5,309 MW on May 8

The data also showed the highest amount of wind and solar resources, 223,195 MWh, were curtailed in May 2019, an important historic peak to track as the ISO contends with potential capacity shortfalls and intensified evening ramps due to rising renewable resource integration.

ERCOT’s Reserve Margin Climbs 2% for Summer 2020

The ERCOT region continues to experience above-normal growth in peak electricity demand due to strong load growth in Far West Texas and along the coast, where new industrial facilities are being constructed.

For 2020, the forecasted peak demand is 76,696 MW. ERCOT’s current systemwide peak demand record is 74,820 MW, set on Aug. 12, 2019 between 4:00 and 5:00 p.m.

Based on preliminary data from generation owners, new capacity additions from planned projects for summer 2020 total 7,633 MW. Based on ERCOT’s current interconnection queue, the majority of new generation projects are renewable and small, flexible gas-fired resources.

2019 Retail Electricity Prices by Region

2017-2019 Electric Prices Graph

Bottom Line

Long-Term Natural Gas Prices Remain Low

Buy! Multi-year gas and electricity contracts remain low and below the $2.50/MMBtu threshold. Temperatures are predicted to be normal to above-normal for the upcoming months, so look to lock in long-term contracts at low prices to ensure some budget certainty.


What happens to our budget if natural gas prices spike this winter or electricity prices spike this summer?


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Do we want budget certainty with fixed prices or do we want current market prices and the associated risk of cost fluctuations?

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