CPV Retail Blog April 2, 2024

CPV RETAIL BLOG

April 2, 2024

It is no secret that coal will continue to be the foundation of power supply in China and India as both countries subordinate climate concerns to supply availability and security. If the United States CO2 emissions suddenly dropped to zero the global impact, while welcomed, would not be enough to offset the projected growth in coal-generated emissions coming from Asia.

US LNG and Coal

It is no secret that coal will continue to be the foundation of power supply in China and India as both countries subordinate climate concerns to supply availability and security. If the United States CO2 emissions suddenly dropped to zero the global impact, while welcomed, would not be enough to offset the projected growth in coal-generated emissions coming from Asia.

The US used to rely on coal for 50% of its power supply prior to the advent of shale-focused natural gas production which started to accelerate in 2010. Since then, coal generation has dropped to under 20% of total power generation, natural gas has taken over the top spot and emissions have declined accordingly. India and China have both seen a rapid increase in electricity demand which has been and will continue to be met with coal.

However, given the current price competitiveness of delivered LNG (approximately $8-$9/MMBTU), natural gas is economic against both coal and oil (pegged off Brent) and March demand for LNG in Asia came in at record levels up 12% year-over-year. Dampened LNG demand in Europe has also helped the competitiveness of these supplies in Asia and this is expected to continue through the balance of the summer.

More buyers are expected to enter the market at these levels as countries like Thailand, Vietnam, and Pakistan also see the compelling value of lower-priced spot LNG cargoes. One of the most significant impacts for global emission reductions is competitive US LNG exports to these countries where coal still is favored for power generation. Politically, supply security pretty much trumps all other concerns in Asia and so we must work, conscious of this paradigm, to help facilitate coal utilization reductions over a long timeline and keep our word on LNG export expansion and supply security.

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PJM Regulatory Review

PJM was pleased to announce last week that average emission rates for the big three, carbon dioxide, nitrogen oxide, and sulfur dioxide declined to a record low in 2023. PJM’s tracking of marginal emission rates and the ability to provide carbon-free energy certificates is in response to growing demand by stakeholders.
The DPL South Zone will see a significant upward revision in capacity values when PJM re-runs the 2024/2025 BRA pursuant to a recent ruling by the US Court of Appeals for the Third Circuit. The court ruled that a violation of the filed rate doctrine (retroactive rate-making) occurred and the revised needs a quick remedy since it takes effect on June 1, 2024.
PJM and MISO are being urged by various interested parties to begin joint planning coordination for the development of cross-region transmission planning.
Recent FERC Commissioner nominees are expressing the importance of reliability in deference to climate impacts for new gas projects.

Market Drivers

Energy Market Update

US natural gas production reported for today has fallen below 100 BCF/D as producers try to choke back production during this low-price environment. Colder weather has provided a bit of a respite as there is enough around to defer injections and help minimize storage congestion risks later in the Fall.
Oil prices continue to rally as global demand remains strong and product inventories are historically low heading into the US driving season.
Global LNG demand remains robust as deliveries to Asia have increased 12% year-over-year primarily due to fuel switching economics. With sub $10/MMBTU delivered prices spot cargoes are having a much easier time finding a home.
Haynesville active drilling continues to decline as break-even NYMEX prices for most operators in the basin are above $2.5/MMBTU. Natural field declines coupled with maintenance and field shut-ins will help keep the market better balanced while reducing (not yet eliminating) the possibility of storage congestion later in the Fall.
The upcoming solar eclipse (April 8) will create some interesting power supply and hourly pricing volatility as it traverses across the US that afternoon.
The recent White House driven pause in LNG permitting has been challenged by a group of 16 states who believe this delay will cause potential buyers to entertain contracting with non-US supplies.
Smaller wind and solar generators may become subject to NERC reliability standards if approval from FERC is received as is sought in the recent March 19 filing.