Market Newsletter – May 2018May 01, 2018
For most of the country, Spring has finally sprung after an unseasonable extended freeze that seemed intent on lingering throughout most of April. Looking back, I’m reminded of baseball’s opening day, burning azaleas in bloom at the Masters, and cityscapes teeming with arts festivals and pollen-powdered Dogwood trees – not only because they mirror our energy landscape’s shoulder period in that they are all typical markers of the arrival of new life following a period of subdued activity, but also because much like our shoulder period, they seem to have been merely a flash in the pan; vanished, here today and gone tomorrow. As of today, we are faced with projections of above average temperatures for the next two weeks, and we are seeing natural gas prices shift momentum to the upside as the commodity has moved, once again, above the $2.80 mark. While we should continue to see healthy injections (triple digits) on a weekly basis over the next few months, the question remains as to whether that will be enough to make a dent in the significant storage deficit (26.6% from 5-year average) for this time of the year. The next few weeks should prove to be instrumental in determining the price ceiling for natural gas, as the delicate balance of supply and demand will either suppress futures below or catapult them beyond the elusive $3 mark.
However abbreviated the duration of Spring may be, it surely has not disappointed from an activity perspective. While record-setting natural gas production continues to duke it out with the rippling effects of shifting weather patterns and retiring base-load (coal/nuclear) generation to determine daily power price swings, there have been several regulatory matters that are worth noting. Firstly, the New Jersey legislature passed a major piece of energy legislation that effectively increased the state’s renewable portfolio standard to 50% by 2030, increasing costs to the end-user approximately $3.50/MWh. The bill also establishes a retail service charge that supports the nuclear generation fleet within the state and should be viewed as another way of responding to mounting pressure from Washington D.C. to ensure grid reliability. Yet it remains difficult to agree considering grid operators maintain that propping up uneconomical generation assets is unnecessary for our grid reliability. In a largely unprecedented move, Secretary Perry has considered invoking a 1950’s wartime measure called the Defense Production Act that forces the temporary nationalization of private sector entities in the name of national security, despite the potential cost increases for end consumers.
In other news, California recently passed a new building code that will require all residential homes constructed after January 1, 2020 to be equipped with solar panels. While it brings some unique challenges as to exactly how this new generation will be utilized, there are incentives built into the code for on-site and/or off-site energy storage and is yet another measure recently enacted in the state of California to move away from fossil fuel dependence. It’s been a busy month in the industry, and the common thread continues to be one of bucking the trend.