President Trump Expected to Withdraw US from Paris Climate Accord: What to Know This Week
What You Need to Know About Energy Prices This Week
Although the President tweeted that he will release his official decision within the next week, several reports, including those from CNN and the Associated Press, claim he plans to withdraw the United States' commitment to reduce greenhouse gas emissions from the historic agreement reached at a meeting of the United Nations Framework Convention on Climate Change in Paris in 2015.
Under the current conditions of the agreement, the US has pledged to reduce 80% of climate-warming emissions by 2050 from 2005 levels. The electricity generation sector, which currently accounts for the largest share of carbon emissions in the US, still requires significant transformation in order to meet that target.
Although this move is likely to have diplomatic ramifications, it is unclear what it will mean for the direction of the US energy industry in the near-term. President Trump and Environmental Protection Agency (EPA) Administrator Scott Pruitt have already put into place actions to roll back the Clean Power Plan, which experts say is a necessary foundation for the US to have a chance at meeting its Paris obligations. However, the current administration’s pledge to revitalize the coal industry has so far been challenged by an energy market that heavily favors natural gas.
It is also unclear what avenue the President will take to pull the US out of the agreement, and over what timeline. The Paris Agreement reached enough international support to officially enter into force in October—a milestone which would reportedly make it difficult for the ratifying nations to be officially released from their commitment until at least 2020.
The uncertainty means little in the short term for pricing, where historically low electric commodity costs are not likely to react much. However, the pending announcement could have a long-term impact on the market. In order to meet the current de-carbonization goals under the Paris agreement, the US would likely have to shift away from its dependence on natural gas as well.
A Brief Primer on Energy Markets
Every week, EnerNOC’s energy intelligence team analyzes the market developments driving energy prices. In this weekly article, you’ll see a lot of discussion about energy generation sources, such as natural gas, coal, nuclear, and some renewable and distributed energy resources. You’ll also see a lot of talk about the factors affecting generation: weather, production, storage levels, natural disasters, geopolitical events, and so on.
The connections between the drivers and the energy markets are complex, but here’s what you should know in a nutshell. Weather is a key driver because it has a direct impact on demand for electricity and natural gas. Temperature extremes cause spikes in demand for natural gas, either directly for home heat or indirectly as a fuel source to generate electricity for air conditioning. Similarly, unexpected natural disasters or geopolitical events could suddenly affect supply, which has a similar downstream effect on pricing. And, of course, any change in pricing is going to affect your organization’s energy costs. Keeping up with new developments in the market is important to ensuring you don’t miss opportunities that could save significant money for your business over the long term.
If this is all still a little confusing, talk to an energy procurement expert to learn why the factors affecting energy markets actually matter to your business. Or check out our other content to learn more about what drives energy prices and how you can turn temporary low-price opportunities into long-term savings.
What's Driving the Market Up?
In the short term:
- At an average of 76.6 Bcf/Day, domestic gas supply remains flat, according to data from PointLogic
- Gas exports to Mexico increased by 1% week-over-week
- Gas injections into storage below five-year average pace, eroding storage surplus (against five-year average of 2,203 Bcf)
In the long term:
- US Department of Energy (DOE) gives approval to the Golden Pass LNG liquefaction terminal for exporting 2.21 Bcf/day of LNG for the next 20 years
- US Energy Information Administration (EIA) projects 4% year-over-year growth in gas used to generate power
- The EIA projects that 2017 natural gas prices could average $4/MMBtu
- Cheniere Energy, the operator of the Sabine Pass terminal, received authorization from FERC to commence liquefaction and export activities from Train 3
- According to the EIA, US is on its way to being a net energy exporter
- Liquefied natural gas exports have begun and are expected to average 1.8 Bcf/d, up from about 0.6 Bcf/d in 2016
- PJM’s board of directors has approved higher tariff rates through 2024 to help cover operating and administrative costs
- 21 GW of generating capacity expected to retire by 2020
What's Driving the Market Down?
In the short term:
- Weather forecasts call for below-normal temperatures across major demand centers in the Midwest and along the East Coast
- Gas in storage 241 Bcf above five-year average
In the long term:
- The White House has directed the DOI to allow oil and gas drilling in federally owned offshore areas
- Rover Pipeline and Atlantic Sunrise Project win FERC approval
- Nuclear industry targets 30% cost reduction by 2018 in order to increase competitiveness in the market
- FERC has approved the construction of capacity enhancement for the Rockies Express Pipeline
- Pipeline flows from the Algonquin Gas Transmission’s Incremental Market project started on November 1
- The US electric grid is expected to add almost 55 GW of generating capacity, most of which will be wind, solar, and natural gas
- 28,607 MW of natural gas capacity is expected to come online between 2015 and 2017
- Strong growth from shale gas is expected to continue
How Are Natural Gas Prices Trending?
This chart shows how month-ahead prices for natural gas are settling on the New York Mercantile Exchange. It is a good indicator of where the market is, relative to where it has been over the past four years.
What Do Forward Natural Gas Markets Look Like?
Henry Hub represents a main distribution center for natural gas. Activity at the Henry Hub is considered a benchmark for natural gas prices in markets across the country, including the NYMEX and OTC Global Holdings. This chart shows how Henry Hub forward prices for natural gas have trended over the past calendar year.
1 Year Trend of Power Around-the-Clock Calendar Year Prices
Prices for power are constantly fluctuating, and it can be difficult to know exactly when they are going to spike or plummet. These charts show how future power prices have trended over the past calendar year for New England (ISO-NE), the mid-Atlantic region (PJM), New York City (NYISO Zone J), and Northern Illinois.
1 Year Trend of Natural Gas Calendar Year Prices
While the Henry Hub provides the benchmark, prices tend to vary based on regional factors. These charts show how forward prices are trending over the previous calendar year at the hubs for New England (Algonquin), New York (both Transco Z6 NonNY and Transco Z6 NY) and Chicago (Chicago City Gate).
Extreme swings in weather can significantly impact energy prices. These maps depict forecasts courtesy of the National Oceanic and Atmospheric Administration. Blue shading indicates areas with a high probability of seeing below-average temperatures, and red shading shows areas that are likely to see above-average (white areas are most likely to see average temperatures for their climate). The darker the shade of either color, the higher the probability that the corresponding area will see abnormal weather.
For questions about this week's article, contact EnerNOC Energy Analyst Ricky Ghoshroy.