Once upon a time, major hurricanes in the Gulf of Mexico had the potential to wreak havoc on natural gas markets and send prices soaring to levels that are 4X what they are today. Late last month, as Hurricane Laura was heading toward major gas production centers, many were asking if gas prices would turn bullish and increase because of the impact to natural gas supplies. If this were 2005, the answer would have been a definitive “yes.” But today, the correlation of natural gas prices and hurricanes in the Gulf of Mexico is not what it was fifteen or even ten years ago. There are several reasons for this change.

In many electricity markets, natural gas is often the marginal fuel. This means that gas is the fuel that is used to generate the next additional amount of electricity that is required to ensure that there is enough electricity supply to meet the grid’s demand. Over the last ten years, the amount of natural gas generation in PJM has increased from 25% to nearly 40% of the fuel mix. It should be no surprise that the rise and fall of electricity prices throughout PJM is highly correlated to natural gas price movements.

Lately, the bulls have been running in NYC’s electricity market but there has also been a consolidation in forward prices. Figure 1 shows calendar year strips for wholesale electricity in New York City for 2021 through 2024. Wholesale prices in all calendar years hit their all-time lows in late March/early April, shown in the red oval, and have rallied over the last 6 months. Also note that over the last two years, near-term prices have always been less expensive that longer-term prices. This can be seen in the figure below as calendars 2021 and 2022 (blue and black lines) have consistently been less than 2023 and 2024 (green and yellow lines). This is referred to as a contango market, where prices get more expensive into the future.

Over the last few months, we have described Texas' increased reliance on wind generation to help meet peak demand requirements for electricity. Over the summer, the rolling black-outs in California were heavily covered in the news with many asking how a state known for its technological advancements with the most solar power has become vulnerable to insufficient power supplies.

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Temperatures and humidity remain elevated all across Texas, which will increase electricity demand into the late afternoon. The peak demand forecast today is 70,397 MWs, which is expected to occur at 5:00 PM CST.  This would set the all-time record peak for September and exceed the previous high of 69,187 MWs, which was set last year. With cold fronts in the long-term forecast (woohoo!), this may be one of the hottest days of the month.

PJM has issued another hot weather alert today across the region. Temperatures are likely to exceed 90°F with high humidity causing a steady rise in electricity demand. The five Coincident Peak (CP) demand days for 2020 in PJM are shown below in Figure 1. There is a strong risk that a new CP is set this afternoon as forecasters expect that today’s load will surpass 144,000 MWs by 5:00 PM EST.

Tasseography is a fancy word for fortune-telling by reading tea leaves. Humans often search for patterns in hopes of predicting the future just as we do with financial markets. While serious investors would never resort to reading tea leaves, technical traders and fundamental analysts look for patterns and trends to better understand and anticipate market movement.

The last 30 days have shown how the stability of the power grid in Texas is influenced by the wind. In late July, Hurricane Hanna came onshore near Kenedy County as a Category 1 storm with maximum sustained winds of around 90 mph. Its destructive force was felt as it moved across the Rio Grande Valley, causing local structural damage and outages from downed trees and powerlines. Specifically, there was significant damage to a two-mile stretch of 138,000-volt transmission line in Edinburg, just south of the 712-megawatt Magic Valley Generation Station.

Over the last month, near-term electricity prices in New York have risen while longer-term prices have fallen. Figure 1 shows how the price of a one-year strip of electricity has traded since January 2019 for calendar years 2021 through 2025 in New York City.  Note how prices in the near-term, 2021 (blue line) and 2022 (black line), have been rising over the last several weeks after hitting lows earlier this year in April and July.  Longer term prices for calendar years 2024 (yellow line) and 2025 (red line) have been falling since the middle of July.  It is important to note, however, that despite these recent market movements, overall prices across all calendar years are trading at or near their 4-year lows.