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Summer forwards in Texas valued higher YOY as grid braces for tight supply

Texas' power and gas forward strips for the upcoming summer are trending higher year over year, just as the state's grid operator anticipates tight supplies for the season.

In its preliminary "Seasonal Assessment of Resource Adequacy" for this summer, released March 5, the Electric Reliability Council Of Texas sees the combination of peak demand and outages leaving operating reserve shortfalls in both typical and extreme scenarios.

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"Prior to each season, we consider a range of potential risks to determine whether there will be sufficient capacity to meet the expected peak load forecast," ERCOT President and CEO Bill Magness said in a March 5 statement. "In all of the scenarios studied, we identified a potential need to call an energy alert at various times this summer."

Expected operating reserve margins, or the capacity available for operating reserves as a share of peak demand, for summer 2019, span negative 1.2% should forecast peak load combine with typical outages, to as much as negative 6.5% should forecast peak load accompany extreme low wind output. That is equivalent to deficits of 925 MW to as much as 4,884 MW in capacity available for operating reserves. Projected reserve margins for this summer are about two to three percentage points lower than estimates for summer 2018.

Comparing yearly preliminary seasonal assessments, forecast peak demand went up from 72,756 MW for summer 2018 to 74,853 MW for summer 2019, outstripping the year-over-year growth in anticipated total resources from 77,658 MW to 78,154 MW.

Forward strips for summer 2019 delivery at both ERCOT North Zone and the Katy gas hub boast premiums compared to year-ago price levels. Price margins, however, have narrowed for the power market of late and generally remained stable for the gas hub.

Summer strip forwards cover July through August of a given year for power markets and April through October for gas hubs.

ERCOT North around-the-clock summer 2019 forward pricing in the current year averaged in the mid-$80s/MWh in January but has since pulled back to the low $80s/MWh in February and from March 1-15. By contrast, prior-year trading for ERCOT North summer 2019 forwards was relatively subdued but on a steady uptrend, averaging in the low $50s/MWh in January 2018 and February 2018 before accelerating to the high $60s/MWh in the period from March 1-15, 2018. As a result, the year-over-year premium has dwindled from 69.5% in January to 54.6% in February and 22.5% in the first half of March.

Price activity for summer 2019 gas forwards at Katy hub have been relatively stable, averaging in the $2.80s/MMBtu to the low $2.90s/MMBtu thus far in 2019, versus the $2.60s/MMBtu in the comparable period in 2018. The year-over-year margin spanned 8.3% to 10.0%.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities pages.