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Washington — A recent push by Republican US lawmakers urging the Federal Energy Regulatory Commission to finally define grid resilience and take action to ensure coal’s continued place in the energy mix is unlikely to spur any new policies this late in the game, a power industry observer said Nov. 23.

Twenty-two Republicans across the Senate and House criticized FERC’s inaction on a grid resilience review (AD18-7) opened nearly three years ago. FERC opened the docket in January 2018 after a full complement of five commissioners unanimously rejected a proposed rulemaking from the Department of Energy aimed at staving off retirements of coal and nuclear units facing market pressure from cheaper natural gas and renewables (RM18-1).

“However, since the comment period closed on the resilience docket in April 2018, it does not appear that FERC has taken any measurable, additional actions. Meanwhile, fuel-secure traditional baseload resources continue to close at an alarming rate,” Republican Senators John Hoeven of North Dakota, Shelley Moore Capito of West Virginia, Kevin Cramer of North Dakota, John Barrasso of Wyoming and Mike Lee of Utah said in a Nov. 18 letter to FERC Chairman James Danly.

The states they represent accounted for 58% of US coal production in 2019, according to data from the Energy Information Administration.

The senators asserted that “by the end of next year, nearly 42,000 MW of coal-fired electric generation will have closed from the time FERC opened the resilience docket.”

The S&P Global Platts Analytics North American Electricity Long Term Forecast expects installed US coal capacity to plummet 62% between 2020 and 2035 to 84 GW.

A group of 17 lawmakers in the House, led by Representative David McKinley, Republican-West Virginia, sent a similar letter to Danly Nov. 18 that also noted significant nuclear- and gas-fired power plant retirements.

New leadership

The letters from lawmakers follow a leadership change at the commission that was purportedly prompted by the former chairman’s support of carbon pricing. The White House has maintained a skeptical tone on climate science and President Donald Trump has generally opposed policy aimed at mitigating climate change.

FERC declined to comment on the letters or the status of the resilience docket. Danly, who has been very tight-lipped with the press, has not provided much insight into his position on the resilience docket.

During his confirmation hearing in November 2019, he told lawmakers he would have joined other commissioners in voting to reject DOE’s proposal that would have effectively subsidized uneconomic coal and nuclear power plants. But beyond that, he gave few hints of his views on wholesale power market design, grid resilience or support for baseload generation.

But the likely short tenure of Danly’s chairmanship is seen dampening GOP hopes for any FERC-backed initiatives supportive of coal. He is likely to lose the gavel following inauguration in January, after which President-elect Joe Biden is expected to put a Democrat at the helm of the agency.

“It’s a little late in the day for any sort of dramatic changes to policies,” longtime Republican energy lobbyist Mike McKenna, a former Trump adviser, said in an email Nov. 23.

“There may be as many as two votes or as few as zero votes for anything on grid resilience that would emphasize generation enough to make a material difference to coal-fueled generation,” he said. “I don’t think that changes throughout 2021.”

Defining resilience

Both letters from lawmakers referenced power supply shortages in California during a summer heat wave that led to rolling blackouts in August and cast part of the blame on the state’s increasing reliance on intermittent resources.

The letters ask FERC to outline work it has completed or intends to take to evaluate grid resilience, address challenges facing grid operators and strengthen the reliability of the grid.

The letters also specifically seek input on the commission’s work to define resilience and whether fuel security attributes will be incorporated into that definition.

FERC in 2018 noted that DOE’s proposal did not define the term resilience and that there was “no uniform definition” used across the electric utility industry. As such, the commission sought comments on how the term should be defined.

Commissioner Neil Chatterjee said in October 2019, while serving as chairman, that he wanted the agency to reach a “consensus” on how grid resilience should be defined before advancing a proceeding that US coal interests hoped would generate life-extending revenues for struggling plants.

But the commission has been mostly mum on the issue since then, frustrating the coal sector as well as public utility commissioners and lawmakers in coal-reliant states who want the agency to define the term in a way that recognizes coal plants’ ability to store fuel on-site.

DOE’s proposal and other efforts to curb baseload retirements, however, have been panned by much of the power sector as bailouts to prop up uneconomic generation.

Denver — Despite AECO gas hub showing its highest cash price value in years this winter, gas-to-coal switching has so far failed to materialize in the region, meaning demand could increase this coming winter despite higher natural gas prices.

AECO cash prices are expected to be well in excess of $2/MMBtu this winter, which would be far higher than prior winters.

With AECO cash prices expected to be the highest they have been in years this winter, gas-fired plants could ramp down their utilization as coal becomes the more economical generation choice. AECO futures for the balance of the winter 2020-2021 strip were most recently trading around $2.35/MMBtu. This was about 60 cents stronger than the past three winters, raising the possibility that the market could experience gas to-coal switching.

However, data since August indicated that even at these higher prices, there is little risk of significant gas demand loss from the power sector, according to S&P Global Platts Analytics. Gas has fluctuated between 60% and 70% of Alberta Electric System Operator’s thermal loads since August, which could drive a difference of almost 200 MMcf/d of demand this winter. The thermal load is calculated as gas generation divided by coal generation plus gas generation.

Data suggested generators were showing little sensitivity to higher AECO prices.

Gas has accounted for 60% to 70% of AESO thermal loads since August. The difference between 60% and 70% of the total power generated in winter 2019-20, assuming a heat rate of 8 MMBtu/average MW, is about 180 MMcf/d of gas demand, according to Platts Analytics.

Data from the past several months showed little sensitivity to gas prices as it relates to its share of thermal loads in AESO. Various price points have not shown a clear trend toward lower gas generation as AECO strengthens.

When AECO ranged between 90 cents/MMBtu and $1.62/MMBtu, gas averaged 66% of thermal loads for AESO, according to historical data. When the hub featured cash prices of $2.10/MMBtu to $2.57/MMBtu, gas’ percent of thermal loads only fell to average 63%. When prices ranged from $1.92/MMBtu to $2.09/MMBtu, gas’ thermal loads averaged the highest, capturing 67% of AESO generation. This indicated there is no clear sign AECO’s expected strength this winter would put dampen gas-fired power demand.

Also, West Canada exports to the US Midwest are likely to strengthen the week starting Nov. 23 as stronger demand widens the Chicago-to-AECO spread. West Canada flows to the US Upper Midwest dipped by 503 MMcf/d from Nov. 18 to 19 as West Canada demand rose 513 MMcf/d, according to Platts Analytics. While this would be enough to weaken flows to the Midwest, demand in the Pacific Northwest also jumped, pulling 3.3 Bcf/d of West Canada’s gas exports.

NICOR’s premium to AECO subsequently fell 20 cents/MMBtu to 4 cents/MMBtu. Northern Border Pipeline took the brunt of this, falling 404 MMcf/d day over day. Platts Analytics expects the weakness to dissipate in the current week as US Midwest demand rises 543 MMcf/d. This should strengthen Chicago once again and widen Chicago’s premium to AECO. Exports from Alberta to the US Upper Midwest are likely to strengthen.

Natural gas storage in the US Northeast, which serves as the heart of dry production in the Lower 48, entered the current injection season with volumes towering over normal levels. However, the onset of the coronavirus pandemic in March, followed by pipeline outages and producers voluntarily shutting in some production, has allowed supply and demand fundamentals to balance.

This led to below-average injections late in the summer, with current storage volumes now sitting just above the five-year average. Northeast gas hub prices are strengthening as the injection season winds down and the region faces a withdrawal season riddled with questions.

Brandon Evans and Eric Brooks of S&P Global Platts look at the factors shaping the market.

Washington — Energy markets and sectors were quick to react to the weekend’s news that Joe Biden had been declared winner of the 2020 race to the White House.

After natural gas-rich Pennsylvania fell his way in ballot counting on Nov. 7, Biden was unofficially declared the winner and president-elect of the US.

Biden would bring a decidedly different approach to shaping energy, climate and trade policy. Among other things, Biden has vowed to make a swift pivot to clean energy.

But before he can do any of that, he’ll have to withstand a series of legal and administrative challenges raised by President Donald Trump, which could drag out a final resolution for months.

Also key to Biden’s success is the makeup of the next US Senate. While a shift to Democratic control of the senior legislative body would grease the skids for new initiatives, the chances of that happening were narrowing after the party lost tight races in Alabama, Iowa and South Carolina. Democrats will retain control of the House of Representatives, but with a smaller majority.

Petroleum markets

The petroleum futures complex rallied Nov. 9 primarily on reports of a breakthrough in COVID-19 vaccine research. Crude had already started to rise earlier in the day, after news over the weekend of Biden’s victory.

“Certainty over the election results in the US is certainly one of the factors driving prices up today, it doesn’t seem to matter that much who became president, rather that there is one finally elected,” according to Global Risk Management trader Alexander Black.

The rally extended on news that from Pfizer and BioNTech that their COVID-19 vaccine had shown itself to be more than 90% effective in a phase 3 trial. The news lifted crude and refined products prices on expectations that demand could soon recover.

However, NYMEX front-month crude futures ended that day at $40.29/b, up $3.15 on the day, but where it has lingering mostly since late June.

The vaccine announcement was especially bullish for energy sector equity prices, specifically refiners, who stand to benefit from an increase in demand for gasoline, diesel and jet fuel.

Heading into the market close, Valero Energy stocks were trading at around $50/share, up 31% on the day, while PBF Energy was trading at around $6.72/share, up 34%.

Federal lands drilling

Biden has vowed to halt new drilling permits on federal lands and waters, which puts 1.1 million b/d of oil output and 3.7 Bcf/d of gas output at risk by 2025 if existing permits and drilled-but-uncompleted wells are allowed to continue, according to S&P Global Platts Analytics. A total federal drilling ban would cut oil output by 1.6 million b/d.

Well permitting on US federal lands has already increased in anticipation of a potential policy change, according to Platts Analytics.

“Permitting ticked up in October, driven by spikes in the Piceane and Uinta, two basins with heavy exposure to federal lands. Both basins more than doubled their 2020 permitting totals in October alone, with a combined 97 wells approved,” said analysts Rene Santos and Parker Fawcett in a report.

“In the prolific Delaware New Mexico (NM) basin, permitting on federal lands doubled year-to-date,” the analysts said. However, “October permitting did slow to its lowest levels since early 2019, with just 67 wells permitted.”

Platts Analytics expects “permits on federal leases to continue to increase through the end of the year, as president-elect Biden could make good on his promise to stop new drilling on federal lands. However, the pace of increase is likely to drop as operators may be close to having built enough inventory to last for two years (the time limit for federal drilling permits),” the analysts said.

Biofuels rally

Biofuel credits extended their weeklong rally Nov. 9 on anticipation of stronger enforcement of the US Renewable Fuel Standard and fewer refinery exemptions under a Biden administration, though prices could be nearing their peak.

The credits were last higher in February 2018, before the Trump administration accelerated use of small refinery waivers to the biofuel mandate. Market uncertainty remains, as it is not clear if Trump will set final blending volumes for 2021 or leave the policy to Biden’s EPA.

Investors pushed shares of US LNG exporters higher Nov. 9, on the possibility of the lowering of trade tensions between Washington and Beijing once Biden takes office.

The elimination of tariffs would provide the certainty the market needs for greater flows of LNG from the US to China and for new long-term contracts to be signed that would help US developers sanction projects.

Shares of Cheniere Energy, the biggest US LNG exporter, rose 3.6% to $51.80, while shares of Cameron LNG operator Sempra Energy advanced 4.5% to $130.39. Rio Grande LNG Developer NextDecade jumped 13.7% to $2.49, while shares of Driftwood LNG developer Tellurian rose 9.5% to $1.08.

Power/Climate

The US appears headed for a clean energy future regardless of who sits in the White House next year. But the pace of the energy transition – and presumably the severity of ensuing climate change impacts – could look dramatically different under Biden.

While analysts see Biden preserving a role for natural gas, his climate plan would invest $2 trillion in renewable power, electric grid upgrades, green building initiatives and other clean energy initiatives that would displace fossil fuels.

While a potentially divided Congress could hamper legislative efforts to pursue climate goals, Biden could make use of federal agency and executive actions, continuing a more recent trend of governing through executive orders.

Biden has already said he plans to sign a series of executive orders reinstating certain environmental rules that the Trump administration rolled back.

The president-elect could advance climate goals on the international level, as well, by promoting US leadership in the global effort to cut emissions. While Trump officially withdrew the nation from the Paris climate agreement on Nov. 4, Biden has committed to rejoining the accord on his first day in office.

Gas consumption flat to lower

A Biden presidency will likely push the Platts Analytics reference case forecast for US power generation fuel consumption toward a high-decarbonization scenario.

The most recent Platts Analytics forecast reference case has natural gas consumption as a generation fuel flattening out over the next few years and continuing on a flat trajectory through 2050.

However, under a high decarbonization scenario – one similar to the Biden plan – US natural gas consumption from power generation begins to decline sharply in about five years before flattening out around 100 average GW from about 2035 to 2050.

As expected, a Biden presidency could lead to a sharper increase in wind and solar generation, a sharper drop in coal-fired power generation and much less of a decline in nuclear power as the US needs low carbon power options to meet more challenging decarbonization goals.

Nuke support

The apparent failure of Democrats to capture control of the Senate means more ambitious climate agendas may be tempered by the political reality of that chamber’s makeup, Atlantic Council senior fellow for nuclear energy Jennifer Gordon said in a blog post Nov. 7.

“While the full scope of Democratic policies may not be realized by the next Congress, legislation that encourages the rapid deployment of nuclear energy technology represents an area where Democrats and Republicans can continue to work together—as they have over the last four years,” she said.

The bipartisan support may apply to the existing nuclear fleet as well as a new generation of smaller advanced reactors that can integrate better with renewable energy and cost less than earlier-generation nuclear units, Gordon said.

In some ways, Biden may be more favorable for nuclear energy than Trump was, said Brandon Munro, CEO of Bannerman Resources, a uranium exploration company, in a note Nov. 9. Trump had to ensure than any support he gave to nuclear energy did not hurt fossil interests supported by his base, and was hesitant to pick winners and losers in keeping with Republican economic orthodoxy, Munro said.

“In contrast, Biden’s climate plan calls for various tax incentives and credits for clean energy, including nuclear power,” he said.

Denver — While the bulk of the market expected a second, consecutive, weekly withdrawal to US working gas in storage for the first week in November, a net injection was reported instead, while one more build is likely before the seasonal switch to draws due to low heating demand.

US natural gas storage inventories increased by 8 Bcf to 3.927 Tcf for the week ended Nov. 13, Energy Information Administration data showed. The report was issued one day later than usual due to the Veteran’s Day holiday.

The injection stood in contrast to an S&P Global Platts survey of analysts calling for a 4 Bcf withdrawal. Responses to the survey ranged for a draw of 12 Bcf to a 6 Bcf injection. The build was still less than the 12 Bcf build reported during the same week last year as well as the five-year average gain of 33 Bcf, according to EIA data.

The week saw temperatures in the middling zone between heating and cooling, resulting in a 4.3 Bcf/d decline in gas-fired power generation without significant residential and commercial demand gains in return, according to S&P Global Platts Analytics. LNG feedgas deliveries continued to climb in the wake of a busy hurricane season, gaining 1 Bcf/d.

Northeast production ramped up to record highs for the reference week, pushing up US supplies by 1.5 Bcf/d, and further weighing on prices at Henry Hub.

Storage volumes now stand 196 Bcf, or 5.3%, more than the year-ago level of 3.731 Tcf and 176 Bcf, or 4.7%, more than the five-year average of 3.751 Tcf.

The NYMEX Henry Hub December contract added 4.7 cents to $3.023/MMBtu in trading following the release of the weekly storage report at 10:30 am ET. The remaining winter strip, January through March, gained 4.6 cents to $3.086/MMBtu. However, the gains shifted to minor losses by the afternoon, with the prompt month dipping 3 cents from the day prior’s settlement while the remaining winter strip shed 1 cent.

S&P Global Platts Analytics’ supply and demand model currently forecasts a 19 Bcf injection for the week-ending Nov. 13. A sudden shift to warmer than normal temperatures loosened US fundamentals week over week, resulting in an 8 Bcf/d decline in residential and commercial demand. Dry gas production also declined by 1.8 Bcf/d, partially offsetting the bearishness of the demand losses.

The week-ending Nov. 20 looks to finally mark the switch to the winter withdrawal season, but early forecasts show below-average draws for the remainder of the month.