March 12, 2024

Shale Production Treadmill

PJM Regulatory Review

PJM Regulatory Review

  • PJM along with a few other constituents are seeking additional clarifications from the FERC on their recent order on capacity market reforms, pertaining to the role of the market monitor in establishing appropriate capacity market seller offer caps. With the June auction now delayed 35 additional days there appears to be enough time for review.
  • PJM’s Regional Transmission Expansion Plan focused on solutions to deal with the following energy transition challenges:
  • 1-increasing interconnection request submissions from renewable resources that have much different operating characteristics than the retiring fossil fleet.
  • 2-increasing demand concentrations due to the data center build-out.
  • 3-increasing demand from the electrification of transportation and building sectors.
  • PJM affirmed through a vote on March 6 to change the way energy efficiency resources (EER) are to be treated in the capacity market. The rules regarding EER have not been reviewed since they were introduced into the capacity market in 2009.

Market Drivers

Energy Market Update

  • US gas production continues to trend lower either through a combination of natural declines in shale deliverability and/or production curtailments from several large producers.
  • Storage inventories are likely to end this season at or near record levels above 2.2 TCF. Exiting winter with this much gas still in storage will likely continue to keep prices in check and force producers to manage production growth to avoid congestion issues in October.
  • After divesting Equitrans Midstream in 2018, EQT announced today it is re-acquiring the company for $5.8 billion. Equitrans is the owner/operator of the soon-to-be commercial Mountain Valley Pipeline along with other strategic pipeline assets in Appalachia which gather and transport a significant portion of EQT’s production.
  • LNG demand over the summer could surprise to the upside given drought conditions in several key hydro-electric dominated and the current price competitiveness of LNG against alternate fuel sources.
  • Oil prices rallied this past week as West Texas Intermediate traded back above $80/BBL on the back of continued distillate and unleaded gasoline inventory withdrawals. With the expected growth in non-OPEC production, the market looks balanced between supply and demand although, with the continued unrest in the Middle East, the fear premium remains muted.

Forward Pricing

Renewable Energy