S&P Overview of Northeast Power Market – NatGas & Electric Gen

KC_PGAT_250x125_2016Two weeks ago MDN invited you to join us for the upcoming Analyst Training in the Power and Gas Sectors, on August 8-9 in New York City (see Join MDN in NYC for SNL’s Analyst Training in the Power and Gas Sectors). Editor Jim Willis will attend the training. There are a number of MDN subscribers based in New York, Chicago, Pittsburgh and Washington who should attend this event. Today we have a small preview to share. German banking giant Deutsche Bank recently hosted a conference call with Steve Piper, Director of Energy Research at S&P Global. Steve is one of the seminar leaders/speakers for the upcoming Analyst Training in NYC. He had some great insights and this general overview of the Northeast power market…

A quick summary of the call from DB:

DB Access: Weekly Call Series

Today we hosted a call on the Northeast power markets with Steve Piper, Director of Energy Research at S&P Global (formerly referred to as SNL). We focused on regional power supply / demand dynamics — and, more importantly, the corresponding outlook for natural gas.

US Market Overview and Trends

The US power market comprises 850-900 GW of generation, and following the rapid expansion of gas-fired capacity there is now a roughly even split between gas and coal at 300-350 GW each. 2016 should be the first year where gas tops coal in the mix, which has helped support pipeline vols – notably KMI just reported +8% YoY growth in power burn on its pipes in 2Q16 (after +16% in 2Q15). Cheap gas + federal regulations have in turn undercut coal here.

Northeast Markets Facing Lower Demand

In our call, we focused on the three key markets in the Northeast: ISO-New England (~30 GW installed capacity), ISO-New York (~40 GW), and PJM (~180 GW). Piper outlined muted demand growth for all three: “very slowly” in New England, “virtually flat” in New York, and generally decelerating in PJM. This contrasts with regional gas production up meaningfully over the last several years (Marcellus and Utica up +19-20 bcf/d total since the start of 2010).

Key Drivers of Supply

Piper offered a mixed outlook for gas in the NE, with new plants offering some growth to partially replace coal/nuclear retirements, but switching now limited:

  • Construction: New gas-fired capacity should drive ~900 mmcf/d of new demand in the region over the next few years. In NY, 500 MW of peaker capacity is being built (vs. 1500-2000 MW renewables), only supporting 0-250 mmcf/d. Adding in New England gas units (3675 MW by 2019) gets us to +650 mmcf/d. Finally, despite recent increases in PJM (+1.5-1.8 bcf/d), the region should drive only +250 mmcf/d going forward.
  • Retirements: Almost all coal-fired capacity in New England and NY has been retired, or will be over the next three years. Nuclear is next in line, with FitzPatrick possibly closing next year, Pilgrim in 2019, and ongoing questions around Indian Point (1200 MW). Piper noted that due to policy decisions, renewables should win up to half of these replacements.
  • Switching: Coal/gas switching is a bigger consideration in PJM, where the coal fleet can still compete, particularly in a normal $2.80-2.90/mmbtu environment, and efficiency improvements mean coal can react quickly to gas spikes (Piper suggested this had driven the recent price pullback). In New England, gas-on-gas competition may emerge, with new high-efficiency plants generally bearish for gas prices.

New Gas Pipelines Still Necessary for Winter Demand

Lastly, while retirements have been met with new capacity, the question is if gas supply can reach these plants. Piper cautioned that following recent pipeline delays, another cold winter could drive gas prices up meaningfully. SEP AIM will help, but we will most likely still need a project like Access NE. Regardless, regulatory uncertainty remains a major headwind.*//

Below is the transcript of the call.

*Deutsche Bank (email received Jul 22, 2016) – Subject: Deutsche Bank: MLPs and Natural Gas – Overview of the Northeast Power Market w/ S&P

MLPs and Natural Gas – Overview of the Northeast Power Market w/ S&P

Deutsche Bank Research – MLPS and Natural Gas 7.21.16.pdf