Weighing the Impact of the EPA's Repeal of the Clean Power Plan: What to Know This Week
What You Need to Know About Energy Prices This Week
Published in 2015, the Clean Power Plan (CPP) was an Obama administration measure aimed at reducing carbon emissions in the electricity generation sector by 32% by 2030, compared to 2005 levels.
The signature climate policy initiative of the Obama era, the CPP utilized some ambiguity in the Clean Air Act to regulate carbon. However, several states sued the US Environmental Protection Agency (EPA), arguing that the agency had overstepped its authority. In early 2016, the US Supreme Court issued a stay against enforcement of the CPP, preventing it from ever going into effect. Last week, EPA Administrator Scott Pruitt signed a proposal to repeal the CPP.
For advocates anxious to see the US take meaningful steps to reduce carbon emissions, the announcement came as a blow. However, even without the CPP, many states will be on their way to meeting the emissions reductions goals anyway, whether driven by local policies pushing for renewables or simply fuel switching from coal to the less carbon-intensive natural gas. In Oklahoma, where Scott Pruitt previously served as attorney general, wind and natural gas have sufficiently supplanted coal to the point that the state is on track to meet its CPP targets. Many environmental advocates point to this fact to say that, while the CPP was symbolically powerful, it was not ambitious enough and its mandates would not achieve much beyond what market forces were already driving. However, coal-heavy states like West Virginia would likely have had to make significant changes if the CPP were put in effect.
In the short term, cheap natural gas still dominates as the main factor driving energy prices across the country, and that will likely remain unchanged due to this action. In addition, further investment in coal is unlikely, as the lack of regulatory certainty makes the multi-decade payback on an investment in new power plants too risky. However, it is possible that some plants that would otherwise have had to retire will stay open longer.
A Brief Primer on Energy Markets
Every week, Enel X’s energy intelligence team analyzes the market developments driving energy prices. In this weekly article, you’ll see a lot of discussion about energy generation sources, such as natural gas, coal, nuclear, and some renewable and distributed energy resources. You’ll also see a lot of talk about the factors affecting generation: weather, production, storage levels, natural disasters, geopolitical events, and so on.
The connections between the drivers and the energy markets are complex, but here’s what you should know in a nutshell. Weather is a key driver because it has a direct impact on demand for electricity and natural gas. Temperature extremes cause spikes in demand for natural gas, either directly for home heat or indirectly as a fuel source to generate electricity for air conditioning. Similarly, unexpected natural disasters or geopolitical events could suddenly affect supply, which has a similar downstream effect on pricing. And, of course, any change in pricing is going to affect your organization’s energy costs. Keeping up with new developments in the market is important to ensuring you don’t miss opportunities that could save significant money for your business over the long term.
If this is all still a little confusing, talk to an energy procurement expert to learn why the factors affecting energy markets actually matter to your business. Or check out our other content to learn more about what drives energy prices and how you can turn temporary low-price opportunities into long-term savings.
What's Driving the Market Up?
In the short term:
- The amount of natural gas in storage reserves are now at a deficit to the five-year average for the first time since January
- Three LNG vessels departed Sabine Pass last week carrying 11.2 Bcf of gas for export
In the long term:
- The upcoming winter is expected to be colder than last year
- US Energy Information Administration (EIA) forecasts the annual average Henry Hub spot price will be $3.06/MMBtu in 2017 and increase to $3.29/MMBtu in 2018
- US Department of Energy (DOE) approves first US floating LNG export facility, which is expected to come online in 2021 or 2022
- Rover Pipeline project suffers delays
- Golden Pass LNG liquefaction terminal approved for exporting 2.21 Bcf/day of LNG for the next 20 years
What's Driving the Market Down?
In the short term:
- Natural gas production still averaging 79.7 Bcf/day
- Natural gas consumption dropped 14% week over week
- Mild temperatures expected in the coming weeks
In the long term:
- EIA believes total wind capacity will increase from 81 GW in 2018 to 88 GW in 2017, and 102 GW in 2018
- Due to mild weather, US power generation in 2017 is expected to be down 1.2% from 2016
- US dry natural gas production is forecasted to average 1.7% higher in 2017 than 2016. Production is expected to grow an additional 5.3% in 2018
- The White House has directed the DOI to allow oil and gas drilling in federally owned offshore areas
- Atlantic Sunrise Project win FERC approval
How Are Natural Gas Prices Trending?
This chart shows how month-ahead prices for natural gas are settling on the New York Mercantile Exchange. It is a good indicator of where the market is, relative to where it has been over the past four years.
What Do Forward Natural Gas Markets Look Like?
Henry Hub represents a main distribution center for natural gas. Activity at the Henry Hub is considered a benchmark for natural gas prices in markets across the country, including the NYMEX and OTC Global Holdings. This chart shows how Henry Hub forward prices for natural gas have trended over the past calendar year.
1 Year Trend of Power Around-the-Clock Calendar Year Prices
Prices for power are constantly fluctuating, and it can be difficult to know exactly when they are going to spike or plummet. These charts show how future power prices have trended over the past calendar year for New England (ISO-NE), the mid-Atlantic region (PJM), New York City (NYISO Zone J), and Northern Illinois.
1 Year Trend of Natural Gas Calendar Year Prices
While the Henry Hub provides the benchmark, prices tend to vary based on regional factors. These charts show how forward prices are trending over the previous calendar year at the hubs for New England (Algonquin), New York (both Transco Z6 NonNY and Transco Z6 NY) and Chicago (Chicago City Gate).
Extreme swings in weather can significantly impact energy prices. These maps depict forecasts courtesy of the National Oceanic and Atmospheric Administration. Blue shading indicates areas with a high probability of seeing below-average temperatures, and red shading shows areas that are likely to see above-average (white areas are most likely to see average temperatures for their climate). The darker the shade of either color, the higher the probability that the corresponding area will see abnormal weather.
For questions about this week's article, contact Enel X Energy Analyst Ricky Ghoshroy.