BUE News and Events

Coal to natural gas (NG) switching is when coal generation plants reduce their output while NG plants increase their output. This generally occurs when NG prices decrease to a point where it is more economically to run the NG plants. Currently, this is happening on a large scale. This is partially due to the price dropping below $2, but currently there is more going on. Preparations have begun for the EPA regulations that will limit coal generation.

These regulations are set to take effect on September 1, 2012. Many generators have plans of decommissioning some of their coal plants and they need to start preparing for replacing the generation. In addition, NG drilling companies are cutting back their production, mostly due to the currently high storage levels and low prices. All three factors are slowly creating a perfect storm. The NG price for June has already increased over 5.9 % the past week, with the 12 month strip up 7.7% over the same period, as of close on May 2, 2012. With the summer coming this, electric demand is expected to increase which will continue to push up the NG prices. Are we coming out of the 10 year low? Time will tell…

Jamie Swanson
BidURenergy, Inc.

Natural Gas storage is currently 60% higher than normal for this time of year. The main reason is due to experiencing one of the warmest winters on record. In March, storage levels hit 2.5 trillion cubic feet; this is the highest March inventory since tracking began in 1994. This causes a problem because maximum capacity is 4.1 trillion cubic feet. It is expected this maximum capacity will be reached by October 2012, which has never happened before. Drilling companies will be forced to shut down production and market pricing will plummet, along with the driller’s profit margins. How each company handles this will be interesting. It is expected that some will file bankruptcy or sell some assets in order to regain some of the lost profit.

“The natural gas storage report for week ending April 6, 2012 was more normal with an injection of 8 bcf, but even if the builds remain normal, maximum capacity could still be reached.

Natural Gas prices remain at a historical low, which is keeping the electricity market price down in most markets. However, in some markets customers are experiencing an increase in their overall electric supply rate. Why is this happening? Well, there are many price components that make up a supply rate. The two biggest components, excluding taxes, are energy and capacity. Capacity is currently driving the price up. This is a direct result of EPA regulations and the natural gas market being low. First, EPA regulations are causing coal plants to decommission to reduce greenhouse gas emissions.

Even though some of the regulations aren’t in effect yet, generation companies are preparing for when they will be. Second, the low natural gas market is causing generators to ramp up their natural gas generation and decrease other sources. As warm weather approaches, demand will increase and cause electric market prices to rise. Areas with high capacity costs, like New York City, should expect to see significant increases in their rates, especially compared this past winter season. As a result to all the above, longer term supply agreements are becoming more and more attractive. Lock in while the market is low to maximize savings over the complete term.

March’s weather is expected to have above normal temperatures for most of the U.S. This will continue the mild winter, keeping demand and prices low. Looks like the window of opportunity for maximum savings will remain open for a couple weeks. The question is, how long will this historical low continue for? Time will tell…

Pennsylvania Governor Tom Corbett recently signed a bill allowing county governments to charge a 15 year “impact fee” on Marcellus Shale natural gas drilling companies. The bill imposes a $50,000 fee on well drilling for gas in the Marcellus Shale. For many drilling companies, this cost can be extremely significant, as most companies have multiple drilling wells. If the counties impose the fee, the companies may be forced to drill elsewhere or not at all which is expected to slow natural gas production. The drilling companies will be required to pay by September 1st if the county where they are drilling decides to impose this fee.

The Cross State Air Pollution Rule (CSAPR) was finalized by the US Environmental Agency (EPA) on July 6, 2011. The goal of this regulation is to decrease health issues caused by power plant emissions. This rule is expected to cause electricity prices to increase significantly because coal generating plants will have to implement emissions reducing upgrades or close the plant.

The CSAPR was recently put on hold by the US Court of Appeals. This is good news for now but it is still expected to be implemented in the future, which will increase costs. Stay tuned for more information.

The natural gas (NG) market has currently hit its lowest point in 10 years. Electricity rates follow the NG trends due to NG generation during peak demand hours. Now is the perfect time to consider locking in electric and/or NG fixed rates. Acting fast is essential because cold temperatures are on the horizon.

The Annual Baseline Assessment of Choice in Canada and the United States was recently released. This report reflects the growing strength of competition and industry innovations in states with retail markets. New York ranked third for large commercial and industrial (C&I) customers, just behind Texas and Illinois. NY ranked second for residential, behind TX. Pennsylvania trailed NY by one in each category. New Jersey is in the middle ranking 10th for large C&I customers and 12th for residential.

Pennsylvania has ranked second in the nation for amount of emissions released from electricity generation plants. This is mainly due to the amount of coal generation in the state. With the recent EPA regulations this could result in rates to increase and cause reliability issues for the Keystone State. As no surprise to energy professionals, Texas ranked number one. TX has been the number one state fighting the EPA on their regulations. Since the state already suffers from reliability problems, they fear the regulations could cause major issues.