The Shipley Energy Commercial Solutions Team is excited to share the August Energy Market Update to inform you of trends, weather, and other factors impacting the energy market.
Read the July 2024 Energy Market Update ->
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The September 2024 NYMEX natural gas contract expired at a price of $1.930/MMBtu. This is the second month in a row that the NG NYMEX settlement has been below $2.00 and the fifth time that’s happened so far this year. The settlement prices for June and July 2024 averaged $2.56 before the steep sell-off that brought the prompt NYMEX back under $2 for August and September. This is the first time in the last 10 years that the September NYMEX expiration has been under $2.
In the days following the expiration of the September 2024 NYMEX contract, the natural gas markets have seen some sustained upward momentum. This recent rallying has been attributed to strong demand for natural gas to fuel electricity generation to meet cooling demands for the Western part of the country. Very high temperatures are persisting across the Western states here late into the summer prompting increased air-conditioning use and power burn. Natural gas currently fuels about 42% of electricity generation in the U.S.. This will be a factor to watch as we move throughout this month and potentially into milder weather throughout the country.
Two additional factors that can impact the market in the coming weeks are: 1.) new natural gas pipeline projects coming online; and 2.) the remainder of hurricane season in the Atlantic and Gulf of Mexico.
The Matterhorn Express Pipeline is on track to begin service sometime in September. Once online, this pipeline will move natural gas from the Permian Basin of West Texas and travel across the state, primarily to LNG (liquified natural gas) export facilities along the coast of Southern Texas. However, this pipeline is potentially coming online before those LNG facilities have the capability and demands to export that additional gas overseas to European and Asian markets. Should that happen, there will be an additional 2.5 BCF (billion cubic feet) per day of natural gas supply without an immediate need that would likely put downward pressure on the gas market due to oversupply.
There also remains the potential for more major hurricanes to develop and make landfall in that Texas/Gulf of Mexico region of the country. Another major storm in that area presents the risk of damage to NG export facilities that could result in even more gas being stranded and further over-supplying the U.S. market. We saw this a few months ago when Hurricane Beryl took the Freeport LNG export facility in Texas offline for about a month.
As of this week’s storage report, the U.S Energy Information Administration (EIA) is showing levels of gas in underground storage that are 6.6% above last year at this time and 10.7% above the average of the past 5 years. The level of gas available in storage by the time we reach the end of October will impact how much concern the market has regarding available winter gas supply.
Factors impacting the natural gas markets currently:
Action Advice: As we move into Fall, it’s a good time to review your natural gas contract and make sure you are locked in for your winter 2024/2025 needs before colder weather arrives.
Other rate options include Basis Only or NYMEX Lock deals to separate the two elements of your natural gas supply price to look for potential value vs standard Fixed pricing.
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September 2024 Natural Gas NYMEX Settlement Price: $1.930/mmbtu
Last month: August 2024 Natural Gas NYMEX Settlement Price: $1.907/mmbtu
Last year: September 2023 Natural Gas NYMEX Settlement Price: $2.556/mmbtu
Despite several flips from warmer-than-normal to cooler-than-normal weather, August saw fairly limited price volatility and ended the month roughly where we started. The 12-month electricity price on the last Friday in August was within $0.40/MWh ($0.0004/kWh) of the price on the last Friday in June for Ohio, and within $0.25/MWh ($0.00025/kWh) in PA. It is still cheaper to do a shorter-term contract right now than a longer term, even without the impact of the capacity cost increases that we discussed last month. The 12-month price is running ~$3.30/MWh cheaper than the 36-month price in Ohio, and trading ~$3.80/MWh below the 36-month price in PA. (Remember that these numbers are for energy-only rates and do not include the other components of an all-in fixed retail price.)
The underlying market fundamentals suggest, however, that rising energy prices are still on the table. Natural gas is a major feedstock for electricity generation, and a major source of volatility in electricity prices. While short-term natural gas supplies are healthy, we are seeing several long-term trends that aren’t great news for energy buyers:
See last month’s Energy Market Update from Ron Martin, former anchor for WGAL-TV.
Watch July 2024 Energy Market Update Recap ->
The wholesale energy markets watch these factors, and changes can push prices up or down on a daily basis. Based on where we stand now, we recommend evaluating these strategies:
Your to-do list for September:
Prices continue to weaken as bearish sentiment continues.
Continued weakening economic data, macro geopolitical headwinds, end of summer driving demand seasonality, OPEC/Libya, and weak China demand all have been contributing factors to the continued sell-off.
The Middle East geopolitical volatility premium, which has helped prop up crude and energy prices, has faded as most rallies do after the market digested that there are no serious supply shocks or major supply routes cut off.
The very weak economic story out of China, the world’s largest oil importer, has essentially capped price action above $80/bbl. Weak China demand, coupled with the previously scheduled OPEC oil output hike to increase production and add oil back into the global market, has sent crude and refined products prices to multi-year lows.
On the domestic fuel side, the demand story has been muddled. The EIA has been underreporting gasoline demand for the last 2+ years by up to 100-400K bbls per day. When the EIA publishes weak fuel demand in their weekly reports, it has had a negative connotation on prices. Diesel prices have been hampered by lower consumption as US Manufacturing ISM data is rolling over. Earlier this year manufacturing activity ticked above 50 into economic expansionary territory. Since early Spring, however, manufacturing and business activity for new factory orders and production has slumped. August has continued that trend into economic contraction.
As we approach the end of the shoulder season, ULSD and gasoline futures are trading at levels not seen since December 2021. At time of writing ULSD futures took out the 2023 low of $2.15. RBOB gasoline is well below the last 2 year lows. The consensus is that the Fed is now behind the curve of cutting interest rates, sending equities and energy lower as Fed induced higher interest rates are now fully manifesting into a slowing economy.
Action advice: As cooler temperatures are now on the horizon, the time to lock in any fixed price risk is here. Multiyear lows in prices heading into the heating season should be strongly considered for rounding out balances of budgeted volume.
Want to help your business navigate the current market? Get started with your Shipley Energy Advisor today!
Disclaimer: The market update is intended solely for informational purposes only. Shipley Energy Company does not warrant or attest to its accuracy. All actions and judgments taken in response to this report are the recipient’s sole responsibility. Shipley Energy Company shall not be liable for any direct, indirect, incidental, consequential, special, or exemplary damages or lost profit resulting from these market updates.
