COVID-19: A Changing Energy Market

Published: April 29, 2020

Many areas of the country have reached the peak and are beginning to look at reopening the economy. This unprecedented pandemic and economic event coupled with the rapid decrease in oil markets and seasonality, saw historic lows in the electricity and natural gas markets. But much like the peak of the pandemic, the electricity and natural gas markets seem to be changing with an upward trend.

For the second straight session natural gas prices are rising. This trend is expected to continue as oil production has shut and there is volatility in the market. Why? Lower oil and oil equity prices imply less production of natural gas as a byproduct of oil wells, called "associated gas," and the market has responded with stronger natural gas prices despite lower natural gas demand from Covid-19 related effects.

That price increase, however, has been restrained by forecasts that the government lockdowns to stop thecoronavirus spread will reduce gas demand and exports. As restrictions begin to ease, and demand increases, the market is expected to follow.

Natural gas markets are generally an indication of the electricity markets. The charts below show the low and the upward trend in prices. Provided by one of our vendors, they articulate the average wholesale prices for energy supply. While these are not all-inclusive rates, they do show a strong indication of the current market conditions.

The chart reflects PJM West Hub prices. Average wholesale prices are based on a large block purchase of electricity at 100% load factor. Prices do not include charges for load following, imbalance or management fees typically included in retail supply quotes reflecting charges to the customer's meter. In addition, losses, transmission, ancillary and delivery costs are not included. Chart and information provided by supplier MidAmerican Energy Services.

 

The chart reflects New York-Zone G prices. Average wholesale prices are based on a large block purchase of electricity at 100% load factor. Prices do not include charges for load following, imbalance or management fees typically included in retail supply quotes reflecting charges to the customer's meter. In addition, losses, transmission, ancillary and delivery costs are not included.  Chart and information provided by supplier MidAmerican Energy Services.

As previously stated in a March market release, “Prices this low may not last as long as the virus. Buyers will look to defer or cancel contracts. Producers will curtail production due to lower demand. New generation will be unable to go online due to debt. Governments might change policy to spur the economy.” The charts indicate that trend is now changing.

If you have an electricity supply contract ending in the next 18 months, now is the time to be shopping. Diversegy, subsidiary of Genie Energy (NYSE: GNE), is a commercial energy advisor working with commercial and industrial customers. We have a nationwide portfolio of vendors that can help reduce electricity costs. In addition, we have a wide variety of strategies outside of procurement that can help large & complicated users reduce their energy expense further (i.e. solar, LED, HVAC, Demand Response).  

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