When Energy Markets Go Crazy! Holly O Higgins Energy Analyst State Energy Office Heating the Midwest Conference Green Bay April 29- May 1, 2014
Overview Compare pricing of hea/ng fuels Review of hea/ng fuels used in Wisconsin and their characteris/cs Price/MMBtu The role of biomass for the residen/al market Prognos/ca/on Supply and pricing of winter fuels this summer, and upcoming winter
Residential Heating Fuels Source: US Census Bureau/American Community Survey
Fuel Characteristics Hea/ng Oil Similar to on- road diesel fuel; more sulfur and red dye Prices generally follow the crude oil market Demand is seasonal 2013-2014 winter price peaked on February 24 at $3.712/gallon ($26.765/MMBtu) Average seasonal price $3.559/gallon ($25.661/MMBtu) Unregulated fuel Electricity Available across the state Most expensive fuel for space hea/ng with average seasonal price of $.135/kWh ($39.668/MMBtu) Seasonal consump/on more apparent in the summer Regulated fuel
Fuel Characteristics Natural Gas Most popular, least expensive fuel for space hea/ng in Wisconsin. Average price for the season is $8.50/MMBtu Emissions: 117 lbs of CO2/MMBtu. HO, 161.3 lbs/mmbtu; propane, 139 lbs/mmbtu. Regulated fuel U/lity price set by commodi/es market Propane Residen/al and agricultural customers Price set by commodi/es market; historically tracks petroleum, recently tracking natural gas Unregulated fuel
Residential Energy Prices Residen.al Energy Prices September 2010 through April 13, 2014 $60.000 $50.000 $40.000 $/MMBtu $30.000 $20.000 $10.000 $0.000 9/13/2010 10/13/2010 11/13/2010 12/13/2010 1/13/2011 2/13/2011 3/13/2011 4/13/2011 5/13/2011 6/13/2011 7/13/2011 8/13/2011 9/13/2011 10/13/2011 11/13/2011 12/13/2011 1/13/2012 2/13/2012 3/13/2012 4/13/2012 5/13/2012 6/13/2012 7/13/2012 8/13/2012 9/13/2012 10/13/2012 11/13/2012 12/13/2012 1/13/2013 2/13/2013 3/13/2013 4/13/2013 5/13/2013 6/13/2013 7/13/2013 8/13/2013 9/13/2013 10/13/2013 11/13/2013 12/13/2013 1/13/2014 2/13/2014 3/13/2014 4/13/2014 Hea/ng Oil Propane Natural Gas Electricity
Residential Energy Prices Residen.al Energy Prices September 2010 through April 13, 2014 $60.000 $50.000 $40.000 $/MMBtu $30.000 $20.000 $10.000 $0.000 9/13/2010 10/13/2010 11/13/2010 12/13/2010 1/13/2011 2/13/2011 3/13/2011 4/13/2011 5/13/2011 6/13/2011 7/13/2011 8/13/2011 9/13/2011 10/13/2011 11/13/2011 12/13/2011 1/13/2012 2/13/2012 3/13/2012 4/13/2012 5/13/2012 6/13/2012 7/13/2012 8/13/2012 9/13/2012 10/13/2012 11/13/2012 12/13/2012 1/13/2013 2/13/2013 3/13/2013 4/13/2013 5/13/2013 6/13/2013 7/13/2013 8/13/2013 9/13/2013 10/13/2013 11/13/2013 12/13/2013 1/13/2014 2/13/2014 3/13/2014 4/13/2014 Hea/ng Oil Propane Natural Gas Electricity Wood Pellets Wood Chips
What s in a Price? 1. Supply and Demand 2. Seasonality 3. Regulation
Supply and Demand Keeping supply and demand in balance Commodities market Propane, heating oil and natural gas Price planning keeping stable pricing for customers Supply variables Storage Pipeline capacity, allocation Demand variables Weather Availability of other fuels
LP Production LP production increases with the development of natural gas from shale formations
LP Exports
LP Inventories 10/2013 In October 2013, US propane stocks, middle of historic range
Record Domestic Demand for LP Domes/c demand hits a record high
Wet Fall Wet fall for crop harves/ng
LP Inventories 12/2013
Very Cold Winter Very cold winter; 19.7% more hea/ng degree days than the previous winter Normal Population-Weighted HDDs (1981-2000) and Actual Population-Weighted HDDs, January 2013 to March 2014 Hea.ng Degree Days, NOAA Normals, 1981-2010 Popula.on- Weighted 1800 1600 1400 1200 1000 800 600 400 200 0 1374.686572 1244.031371 1176.083732 706.4222961 289.0590738 136.5911168 78.74202451 22.15251734 17.10805425 477.2924969 918.2074784 1500.502001 1693.8168 1501.7451 January February March April May June July August September October November December January February March 1800 1600 1222.56491400 1200 1000 800 600 400 200 0 Hea.ng Degree Days, Popula.on- weighted January 2013 to March 2014 Hea/ng Degree Days, Popula/on Weighted, NOAA Normals, 1981-2010 HDDs - - Jan. 2013 to March 2014
Midwest LP Supply Disruptions Midwest terminals unable to replenish supply acer large demand for crop drying Rail delivery disrup/ons Cochin Pipeline reversal
Result? High LP Prices Very Cold Winter Reduced Inventories High LP Prices High Domes/c Demand Supply Disrup/ons Exports
Natural Gas Pricing Cold weather High demand Spot market volume and percentage $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 Wisconsin Residen.al Natural Gas Prices Per Them (includes u.lity meter charge) April 2014- - $0.9775 Per Therm $0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2011 2012 2013 2014
0 Mar- 2014 Jan- 2014 Nov- 2013 Sep- 2013 Jul- 2013 May- 2013 Mar- 2013 Jan- 2013 Nov- 2012 Sep- 2012 Jul- 2012 May- 2012 Mar- 2012 Jan- 2012 Nov- 2011 Sep- 2011 Jul- 2011 May- 2011 Mar- 2011 Jan- 2011 Nov- 2010 Sep- 2010 Natural Gas Pricing Henry Hub Natural Gas Spot Price (Dollars per Million Btu) 7 6 5 4 3 Henry Hub Natural Gas Spot Price (Dollars per Million Btu) 2 1
Regulation and Pricing Regulated Price increases are less dramatic Unregulated Price spikes are more dramatic Datasets
Danger of High Prices The danger with high prices Demand destruction Example Gasoline prices in 2008 LP prices in 2013?
Role of Biomass? Biomass as space heating fuel Fuel switching Primary vs. secondary thermal source Costs Emissions Resource proximity and availability
0.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 trillion Btu/year Residential Biomass Consumption Residen.al Wood Energy Use 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 Fireplaces Stoves
Fuel Switching Wood vs. LP Energy cost savings are not guaranteed Savings? It depends. Thermal portfolio diversification thermal peak shaving Who are the customers?
Pros and Cons - - Homegrown fuel, supports Wisconsin and the Midwest economy, and adds jobs - - Carbon neutral - - Displaces fossil fuels - - Sustainable and renewable fuel with rela/vely stable pricing - - Variable energy content - - Requires physical presence to tend the unit - - Requires physical strength to load wood or pellets - - Emissions must be controlled
the Crystal Ball Says Prices Summer Spot prices will con/nue to decline. Average Henry Hub price in 2014 expected to be $4.44/MMBtu (the price was $6/MMBtu in February and is now $4.90/MMBtu) Prices will be slightly higher this summer Winter EIA is es/ma/ng that households using natural gas can expect to pay about 13% more this winter. Supply Natural Gas The working gas in storage at the end of March this year was the lowest in 11 years. A large rebuild is expected through October. EIA expects that demand from the power sector will be lower due to higher prices, but demand from the residen/al, industrial and commercial sectors is expected to offset the drop in
the Crystal Ball Says
the Crystal Ball Says Prices Winter EIA is projec/ng that households will spend 2% less this winter than last winter due to an/cipated 5% decrease in price and 3% increase in consump/on. Supply Hea/ng Oil Inventories of dis/llates are projected to start the summer 6 million barrels lower than last summer, and 26 million barrels lower than the 5- year average. These inventories will build throughout the summer, and are expected to be on par with inventories at the end of last summer, which were well below the 5- year average.
the Crystal Ball Says Prices Winter EIA is projec/ng that households will spend 9% more this winter in the midwest and 54% higher na/onwide. Supply Propane Exports of propane are expected to con/nue climbing which puts pressure on inventories and supply. The summer build in of supply has begun slowly. The loss of the Cochin pipeline will reduce supply in the Midwest which is being addressed through three new terminals, two in MN and one in WI. These terminals will be served by rail car.
the Crystal Ball Says Prices Electricity EIA es/mates an increase of about 2% in overall seasonal cost. The pressure on electric prices is the result of commodity costs for fuel and power plant fuel switching.
Questions? Holly O Higgins Energy Analyst (608) 266-8052 holly.ohiggins@wisconsin.gov Wisconsin State Energy Office 101 East Main St., 6 th Floor Madison, WI 53703 energyindependence.wi.gov