Energy Market Update. April 8, Kevin Krcil Chris Dubay

Transcription

1 Energy Market Update April 8, 2014 Kevin Krcil Chris Dubay

2 Winter Review and Brief Look at Summer 2014 Kevin Krcil, Head of Weather Trading

3 Agenda Winter Review Outcome Polar Vortex Specific Cold Air Events Summer Forecast and Analysis El Nino Drought Various Summer Outlooks 3

4 Winter US Gas weighted heating degree days (GWHDDs) = US GWHDD 10 yr average = US GWHDD 30 yr average = % increase over the 10 yr avg, and 9% increase over the 30 yr avg Ranked 8 th coldest US winter since 1950 (based on GWHDDs) 4

5 Polar Vortex The polar vortex is a persistent, large-scale cyclone (intense area of low pressure) located near both of a planet's geographical poles. They strengthen in the winter and weaken in the summer. They are associated with extreme cold as noted during the January and February episodes, but typically reside near/within the Arctic/Antarctic Circles. 5

6 Monthly Temperature Anomalies (vs. 10 year average) January 2014 February 2014 GWHDDs = 1048 GWHDD 10 year avg. = th coldest since 1950 GWHDDs = 883 GWHDD 10 year avg. = th coldest since

7 Specific Polar Vortex Episodes January th, 2014 February 8-13 th, 2014 GWHDDs = 385 GWHDD 10 year avg. = th coldest since 1950 GWHDDs = 217 GWHDD 10 year avg. = th coldest since

8 A Few Summer Forecast Variables El Nino Drought 8

9 El Nino Regions of Interest El Nino Monitoring /Calculation Regions Current Sea Surface Temperature Anomalies (SSTAs) 9

10 Signs of a Developing El Nino Regional SSTAs Time Series of Equatorial SSTAs 10

11 Drought Drought conditions confined primarily to the Central and Western US Worst conditions continue to be in California El Nino events typically correlate to above average precipitation for most of the US except below average for the West Coast, parts of Texas, and the New England states 11

12 El Nino Seasonal Temperature Correlations Summer (Jun-Aug) Winter (Dec-Feb) 12

13 Summer Outlooks 13

14 Questions? 14

15 Energy Market Update Chris Dubay, Energy Advisor 15

16 Natural Gas Forwards Rallied to Five-Year Highs Weekly Prompt NYMEX Natural Gas since 2010 $6.149 settle on 2/19/14 $6.49 intraday on 2/21/ Dip in polar vortex caused repeated cold snaps 16

17 And Significant Volatility in Next-Day Electricity Markets $500 $450 Mass-Hub On-Peak DA $400 $350 $300 $250 $200 $150 $100 $50 $- DA = Day-Ahead Electricity Price Mass-Hub On-Peak DA 17

18 BCF Strong Demand Creates Huge Storage Deficit 3,800 3,300 Source: E.I.A. Estimated U.S. Storage Capacity = 4,239 Bcf Current inventory through 3/28/14 = 822 Bcf 51.6% below one year ago 54.7% below 5-year average All-time record of 3,929 Bcf on 11/2/12 2,800 2,300 1,800 1,300 Projected inventory through 4/18/14 = 915 Bcf 815 Bcf below Bcf below 5YA Working Gas Stock This Year (2014) Working Gas Stock Last Year (2013) Year Average ( ) 18

19 Natural Gas 12-mo Strip Seeking Direction 12-mo strip since Jan 1 st 12-mo strip trending slightly down, but mostly sideways 19

20 Impacts on Forward Pricing 20

21 NG Forwards 2014 Spikes; Terms Less Impacted Change since Nov lows Cal 15 Cal 16 Cal month strip Current / Term Change 12-mo $4.52 +$0.92 Cal 15 $4.28 +$0.40 Cal 16 $4.21 +$0.21 Cal 17 $4.28 +$0.15 NYMEX NG prices since late

22 Prolific Shale Growth Continues Price Impact Beyond Current Weather is Bearish Marcellus now represents ~ 20% of U.S. supply Dramatic impact on regional gas basis and transport flows DTI, TCO and TETCO basis significantly below Henry Hub Domestic dry gas production set record in November (67 Bcf/Day) Shale gas limits long-term market upside 22

23 U.S. Becoming a Natural Gas Exporter Why? Lower prices compared to the world 23

24 Longer Term Gas Generation Growing Why? Cheap gas and expensive EPA regulations Low prices of 2012 were first instance of widespread coal-to-gas switching due to price Significant coal retirements already due to low gas prices Additional coal retirements expected due to EPA regulations 24

25 Bearish Bullish Weather Overtakes Shale as Dominant Market Driver But... Shale remains primary long-term driver Near-Term (2014) Huge storage deficit Generator maintenance/refueling Strong winter gas basis Shale production Lower off-peak generation demand from NG > $4.50 Weak summer gas basis Long-Term (>= 2015) Coal plant retirements due to EPA regulations LNG exports Growing industrial demand Abundant shale NG drilling efficiencies - Rig counts don t count End-user efficiency Wildcards include weather, financial markets & speculators, U.S. and global economies, and geopolitical events Repeat of 2008 highs or 2012 lows are unlikely Long-term remained flat as near-term spiked 25

26 Regional Markets Update 26

27 Strong Power to Regional Gas Correlation $65 ISO-NE Mass Hub vs. Algonquin City Gate Calendar 2015 $8.50 $70 NYISO Zone J vs. Transco Zone 6 NY Calendar 2015 $8.00 $6.70 $60 $7.50 $65 $6.20 $7.00 $55 $60 $5.70 $6.50 $5.20 $50 $6.00 $55 $5.50 $4.70 $45 $50 $5.00 $4.20 $40 $4.50 $45 $3.70 NEPOOL - MASS HUB Cal '15 ATC AGT CITYGATE Cal '15 NYISO - ZONE J Cal '15 ATC TRANSCO ZONE 6 NY Cal '15 The information presented above was gathered and compiled by Direct Energy Business for the convenience of its employees, clients, and potential customers and is for informational purposes only. Direct Energy Business makes no representation or warranty regarding the accuracy, reliability, comprehensiveness, or currency of the aforementioned data. This information is being provided as a courtesy and should not be construed as an offer to sell, a solicitation of an offer to buy any exchange-traded futures, options contracts or any energy commodity, or advice regarding the purchase or sale of exchange-traded futures or options contracts. Past performance is not necessarily indicative of future results. Reliance upon this information is at the sole risk of the reader. The information presented above was gathered and compiled by Direct Energy Business for the convenience of its employees, clients, and potential customers and is for informational purposes only. Direct Energy Business makes no representation or warranty regarding the accuracy, reliability, comprehensiveness, or currency of the aforementioned data. This information is being provided as a courtesy and should not be construed as an offer to sell, a solicitation of an offer to buy any exchange-traded futures, options contracts or any energy commodity, or advice regarding the purchase or sale of exchange-traded futures or options contracts. Past performance is not necessarily indicative of future results. Reliance upon this information is at the sole risk of the reader. PJM West Hub vs. Tetco M3 Calendar 2015 $6.90 $55 $6.40 Especially in the Northeast $50 $5.90 $5.40 $45 $4.90 $4.40 $40 $3.90 $35 $3.40 PJM - WEST HUB Cal '15 ATC TETCO M3 Cal '15 The information presented above was gathered and compiled by Direct Energy Business for the convenience of its employees, clients, and potential customers and is for informational purposes only. Direct Energy Business makes no representation or warranty regarding the accuracy, reliability, comprehensiveness, or currency of the aforementioned data. This information is being provided as a courtesy and should not be construed as an offer to sell, a solicitation of an offer to buy any exchange-traded futures, options contracts or any energy commodity, or advice regarding the purchase or sale of exchange-traded futures or options contracts. Past performance is not necessarily indicative of future results. Reliance upon this information is at the sole risk of the reader. 27

28 Regional Considerations NY/NE Power pricing reflects exaggerated movements in the NYMEX, especially during winter months o Severe pipeline constraints limiting reliability and diversification of generation o No pipeline constraint relief until 2017 ISO-NE instituted Winter Reliability Program for winter o o ISO s focus is to maintain reliability, not put a guard on pricing Successful in maintaining reliability, however, higher prices partly due to high price of oil Loss of over 2,100 MWs generation adding to woes over future reliability o 620 MW Vermont Yankee in Q o 1530 MW Brayton Point in May 2017 o 720 MW Salem Harbor in May 2014 (replaced w/ 674 MW gas turbine in 2016) New capacity zone (Lower Hudson Valley Capacity Zone, or LHV) goes into effect May 1, 2014 without price phase-in o Zones G-J (LHV) $9.96 o LI (Zone K) $6.39 o NYC (Zone J) $16.24 o NYCA (ROS) $

29 Regional Considerations - PJM Much like New England/New York coldest weather in 20 years drove short-term markets significantly higher. PJM West Hub day-ahead prices experienced multiple days of $400+. Capacity rates are key cost factors, expect the unexpected. Shale gas supply provides significant price relief in this region. TETCO M3 basis driving power prices. Discount to NYMEX HH still present during summer months. Impacts from EPA regulations that cause coal retirements present risk (see 2014 and 2015 capacity prices). 29

30 Regional Considerations ERCOT/CAISO Limited impact from polar vortex (summer peak market) ERCOT now forecasts slower growth in electricity demand o Now 1.3% YOY growth vs. the 2.5% a year o Reserve margin wouldn t fall below the 13.75% level until 2019 with this growth forecast Raising offer cap to $9,000/MWh is ERCOT s strategy to maintain sufficient capacity for growing peak requirements (no capacity market) Capacity market talks on hold, may revisit the issue in 2015 Drought risk reversed now above-normal precipitation vs. below-normal just one month ago Nuclear generation spring maintenance o Palo Verde, AZ 1,270 MW o Diablo Canyon, CA 1,100 MW 30

31 Questions? 31

32 Thank you for attending today s webinar Today s slide presentation can be found at: updatewebinar 32