US POWER TRACKER: Cheap gas, bearish weather may weaken Southeast US prices

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Lower gas prices may combine with bearish late spring Southeast US weather forecasts to keep June prices low, judging by current power forward trends.

Also, sharply lower spot natural gas prices and mild weather sank day-ahead on-peak power indexes by more than half in April in the Southeast, compared with April 2022, but prices remained slightly higher than March. S&P Global analysts expect coal-fired generation to have fallen sharply in April in the region, as gas generation and solar shares climbed.

Forward markets

Into Southern May on-peak power averaged about $36.60/MWh in April, 5% less than March's average around $38.50/MWh and down by 50.5% from the $73.90/MWh that May 2022 power averaged in April 2022, according to S&P Global's price database.

Florida's May on-peak power averaged around $35.50/MWh in April, down 4.9% from $37.30/MWh in March and down 49.7% from the $70.50/MWh that May 2022 power averaged in April 2022.

These Into Southern and Florida May on-peak power forwards, which settled near $39.65/MWh and $37.50/MWh, respectively, may limit upside potential for daily power prices during the month.

The National Weather Service's April 30 forecast for May indicated 33%-40% chances for below-normal temperatures in May in Tennessee and surrounding states, with near-normal temperatures along most of the South Atlantic and northern Gulf coasts, and above-normal temperatures more likely on the Florida Peninsula.

The weather service forecasts 33% to 50% chances of above-normal precipitation across most of the Southeast in May, and near-normal precipitation over much of the remainder.

Into Southern June on-peak power averaged about $41.65/MWh in April, down 4% from about $43.40/MWh in March and down 46.9% from the $78.40/MWh that June 2022 power averaged in April 2022.

Florida June on-peak power averaged about $29.50/MWh in April, down about 1.6% from the March average of more than $40/MWh and down 47.4% from the June 2022 average of $75.20/MWh in April 2022.

The National Weather Service's April 20 forecast for May, June and July indicates 40% to 60% chances for above-normal temperatures throughout the Southeast but also 33% to 50% chances for above-normal precipitation.

Looking at gas forwards, the Transco Zone 4 May index, important for Into Southern power, averaged $2.214/MMBtu in April, down almost 14% from March's $2.572/MMBtu and down 66.5% from May 2022's $6.61/MMBtu average in April 2022. Transco Z4 June indexes averaged $2.553/MMBtu in April, down 12.6% from March's $2.922/MMBtu and down 62.2% from June 2022's $6.759/MMBtu in April 2022.

Florida Gas Zone 3 May gas averaged $2.385/MMBtu in April, down 10.6% from March's $2.668/MMBtu and down by 64.3% from May 2022's $6.68/MMBtu average in April 2022. Florida Gas Z3 June gas averaged $2.734/MMBtu in April, down 11.2% from March's $3.077/MMBtu and down 60.1% from June 2022's $6.85/MMBtu average in in April 2022.

Spot markets

In April, Platts-assessed day-ahead on-peak bilateral indexes averaged in the low $30s/MWh across most of the Southeast and in the high $30s/MWh in the Florida load pocket. These were up slightly from March averages near $31/MWh in most of the region and the mid $30s/MWh in Florida. In April 2022, Southeast US bilateral indexes averaged in the mid-$70s/MWh to low $80s/MWh.

Mixed weather data may have influenced bilateral dailies. Combined population-weighted cooling and heating degree days for Georgia in April were down 44.3% from March and virtually flat with April 2022, according to CustomWeather data. In the North American Electric Reliability Corporation's SERC region, formerly known as the Southeast Electric Reliability Council, load levels averaged 67.5 GW in April, down 5.4% from March's 71.3 GW and up slightly from April 2022's 67.3 GW, according to US Energy Information Administration data collected by S&P Global.

In Florida, combined CDDs and HDDs in March were up 15.6% from April and up 10.3% from April 2022. NERC's Florida Reliability Coordinating Council load levels averaged 24.8 GW in April, down 1.1% from March's 25.1 GW and down 7.4% from April 2022's 26.8 GW.

Transco Z4 spot gas averaged $2.104/MMBtu in April, down 9.2% from March's $2.318/MMBtu and down 67.3% from April 2022's $6.434/MMbtu.

Florida Gas Z3 spot averaged $2.245/MMBtu in April, down almost 6% from March's $2.387/MMBtu and down 65.3% from April 2022's $6.465/MMBtu.

Generation mix

Gas-fired generation provided almost 43% of SERC's power in April, up from March's 36.7% and April 2022's 32.9%, according to S&P Global Dimensions Pro data. In contrast, coal plants' share likely fell to less than 12% in April, from March's 18% and April 2022's 22%.

In FRCC, gas-fired generation supplied 79.5% of the power, up from March's 69% and April 2022's 71.4%. In contrast, S&P Global analyses expect coal's share will have fallen to less than 0.5% in April from 8.9% in March and April 2022's 7.7%. FRCC's solar output, meanwhile ,will have risen to 7.3% in April from March's 6.9% and April 2022's 5.3%.