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ERCOT power prices trade in triple digits on heat advisories, natural gas spikes

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Commodity Tracker: 4 charts to watch this week

ERCOT power prices trade in triple digits on heat advisories, natural gas spikes

Highlights

Natural gas elevated as temperatures increase

Demand climbs as production only edges up

East Texas, Southeast spot prices rise for fifth session

Despite mixed movement on the Intercontinental Exchange, power prices in ERCOT trended in the triple digits as the US National Weather Service issued heat advisories amid a heat index forecast near 105 degrees Fahrenheit.

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ERCOT North Hub real-time on-peak intraday HE 0700-HE 2200 for July 26 spiked about $76.50 to trade around $100/MWh, the 16 MWh contract rose about $79 to trade around $104/MWh.

Meanwhile, North Hub real-time on-peak for July 27 delivery dropped about $36.75 from its previous settlement to trade around $138.25/MWh, trending 332% higher than last year at the same time, when the contract settled around $32/MWh.

High temperatures for July 27 were forecast to reach 100 F, with the remainder of the week ranging from the mid-90s to near 104 F, according to the weather service.

Day-ahead forecast demand for July 27 was forecast to fall 0.90% from July 26 levels of 74.7 GW to 74.1 GW, helping the downward movement of spot prices.

Demand for July 28 was predicted to fall further to 72.3 GW, before rising to 72.8 GW for July 29, according to grid operator data.

Contracts fall, remain in triple digits

North Hub real-time on-peak balance of the week strip for July 28 to July 30 also saw declines, falling about $68 to trade around $94.25/MWh. Keeping in trend, current prices were about 390% higher from last July, when prices in the same period averaged about $19.25/MWh.

In the near term, North Hub real-time peak next week contract for Aug. 2 to Aug. 6 followed the downtrend of other contracts, sliding $27 to price around $121.75/MWh. Year on year, prices saw about a $99.75 boost from a 2020 average of about $22/MWh.

Natural gas prices react

East Texas and Southeast spot natural gas prices gained for the fifth consecutive trading session July 26, with prices across major hubs trading $3.90-$4.10/MMBtu amid an above-normal temperature outlook over the next two weeks.

Henry Hub added 3 cents on the day to $4.09/MMBtu, while Katy rose 11 cents on the day to $4.07/MMBtu for flows July 27.

In the futures market, Henry Hub balance-of-the-summer strip pushed higher to stand at $4.05/MMBtu, 6.7 cents weaker than the winter strip of $4.11/MMBtu. Forward pricing broke $4/MMBtu the week of July 19.

Demand response

The elevated pricing environment this summer is a product of rising demand amid flat production. Total demand in the Texas and Southeast region including LNG feedgas stood at 42.7 Bcf July 26, up nearly 1 Bcf from the month-to-date average, according to data from S&P Global Platts Analytics. In July so far, total demand in the region is pacing 5.4 Bcf/d higher than year-ago levels.

In comparison, onshore production during the same time has increased only 1.1 Bcf to stand at 33.2 Bcf/d in July thus far as producers continued to practice capital discipline despite the elevated prices.

Gas storage

With gas-to-coal switching unable to meet demand during the peak summer months, Henry Hub prices are likely to move higher amid weak storage levels. Storage in the region is struggling to inject, bringing new concerns over stock levels if any colder-than-normal weather arises this winter.

Inventories in South Central stood at 1.002 Tcf for the week ended July 16, a deficit of 18% to year-ago levels and 6.4% behind the five-year average, US Energy Information Administration data showed.

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