Market-Based Procurement, Strategic Forward Planning

Summer Energy Market Outlook: Where We Are and Where We’re Going

As we enter the summer of 2020, the U.S is in the very early stages of emerging from an unprecedented few months. Let’s look at some trends and what this means for the electricity and natural gas market summer outlook:

  • After falling to a 25-year-low during an exceptionally mild winter and the surplus of storage inventory, natural gas surged in April as COVID-19 sent oil plummeting into negative territory for the first time on record. The expectation was that associated natural gas production (natural gas produced as a byproduct when extracting oil) would tumble as a result. The month of May has seen significant volatility with swings in both directions as fluctuations in demand rather than supply took center stage.
  • Both the Federal Energy Regulatory Commission (FERC) and the Energy Information Administration (EIA) have a bearish outlook on not only this summer but the remainder of 2020 despite a few contradictions. “Summer 2020 natural gas prices are expected to be lower across the US, with Henry Hub futures prices averaging $1.832/MMBtu for June through August, $0.52/MMBtu lower than 2019 settled futures prices.” (FERC: Summer Energy Market and Reliability Assessment). This expectation from FERC is despite monthly total US gas demand increasing roughly 7% from the same period last year.
  • Meanwhile, the EIA had this to say on U.S electricity markets: “The forecast reduction in overall electricity demand resulting from the economic slowdown, along with lower expected natural gas fuel costs for power generation, drives EIA’s expectation that wholesale electricity prices will be lower in 2020 throughout the country” (EIA: Short-Term Energy Outlook). This is despite a warmer-than-normal summer being expected according to most sources. For June, July and August 2020, the National Oceanic and Atmospheric Administration forecast a greater than 50% probability of above-average temperatures throughout the western US, parts of the southern US and much of the eastern US.

A tremendous amount of uncertainty in the market remains as we wait to see how and at what pace the economy recovers, weather forecasts shift and the outcome of the Presidential election in November. As such, organizations with the ability to look long term have the ability to achieve historically low pricing and budget stability over an extended period. Reach out to an Atlas Advisor to get started on developing and implementing your purchase strategy.

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