Energy Insider Blog

ERCOT PRELIMINARY SUMMER RESOURCE ADEQUACY ASSESSMENT

On March 1, Electric Reliability Council of Texas (ERCOT) issued its preliminary assessment of Resource Adequacy for summer 2013.  According to the published numbers reserve margins (excess capacity over projected peak demand) will be 8.4%, well below that of last summer.  The report suggested that it is very likely that ERCOT will need to declare Emergency Energy Alerts (EEAs).  Depending on which level of EEA is declared, ERCOT will take the following corresponding actions until supply and demand are brought back in to balance:

Over the last couple of years, significant attention has been paid to the practice of “fracking” in which a slurry of water, sand, and chemicals are injected at high pressure to crack open rock formations which hold natural gas and oil.  The use of fracking has fueled the boom in natural gas production and could help the U.S. achieve energy independence by 2030 or sooner.  The boom in natural gas production from fracking has kept natural gas, and therefore energy prices, lower than expected.  In the mid-2000s, most analysts predicted natural gas prices would reach the $10-11/MMBTU range as compared with the current price of less than $3.50/MMBtu.  In short, technology improvements have allowed producers to unlock previously uneconomic or unavailable natural gas and oil deposits in the U.S. Fracking provides substantial economic benefits across the entire U.S. economy;  however, there are concerns about fracking’s environmental impact which are currently being addressed to determine if this technology is to fuel future energy independence for the U.S.

In April 2012, Cheniere Energy received final regulatory approvals to build a major liquefied natural gas (LNG) export terminal at Sabine Pass in Louisiana.  This event rippled through the energy world, with concern growing that export natural gas would lead to higher domestic prices. Currently, natural gas prices in Asia are 3-4 times higher than those in the U.S. while prices in Europe are 2-3 times higher. In light of these spreads, industrial gas producers are urging the Department of Energy to approve LNG exports. However, the export of LNG is unlikely to have significant impact on natural gas prices in the next 3-5 years.  Rather, other factors, such as new environmental regulations, are likely to be more significant drivers of natural gas prices.

A critical element of effective energy risk management is an understanding of all of the cost components behind a retail electric bill and what causes these components to move.  Recently, capacity costs, which are determined by PJM’s Reliability Pricing Model, or RPM, have followed a bell shaped curve across multiple utilities in the Eastern Mid-Atlantic Region, including the Public Service Electric & Gas (PSEG) area in New Jersey.[1] 

A recent proposed change to the PJM demand response program could reduce the value of “limited demand response” to end users.

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If you need timely information on what is happening in the natural gas market  you need to read the Acclaim Energy Insider every week. This week his 2 page overview (see link below) focuses on  the natural gas maket and ERCOT heat rates. Don't get caught without understanding what may be in store for the days ahead.....

Natural Gas futures tumbled after EIA reported an injection of 4Bcf, compared to analysts’ estimates of a 10Bcf draw. The JAN13 contract broke $3.70/MMBtu support and rebounded at the next level  $3.637/MMBtu, which was set earlier this month.  This report was bearish on all counts, since the injection was also above last year’s 2Bcf injection.

Slight rebound today after a sharp Friday selloff. The 1-5 day forecast is calling for below normal temperatures in the eastern half of the U.S., however, above normal temperatures are expected over the next 7-10 days. Longer term winter forecasts are less reliable as unprecedented conditions are making it impossible to use historical trends. With that said, NOAA is projecting above normal temperatures in the western half of the U.S., and equal chances on the eastern half.