Dive Brief:
- Lower natural gas prices in 2023 will lead to a 35-45% “plunge” in the price of on-peak power in most markets across the United States, Moody’s Investors Services said in a Monday research note. California is the exception, where peak prices are expected to fall “only around 9%.”
- Moody’s lowered its outlook for unregulated utilities and power generation companies to stable from positive, citing the lower gas prices. The firm said it now expects gas prices to average slightly more than $3/MMBtu in 2023, “down sharply from our previous expectations that gas prices would remain above $4.50/MMBtu.”
- The firm also weighed in on PJM Interconnection’s February capacity auction results, which saw a 15% drop in prices across most of the grid operator’s footprint. Mixed results across regions “indicate a possible bottoming of PJM capacity prices,” Moody’s said.
Dive Insight:
After a year of rising electricity prices, consumers could find some relief in 2023 as energy prices abate, Moody’s said.
“Natural gas and power price expectations for 2023 have dropped steeply,” the firm said. The current winter season “has been unusually warm,” which moderated heating demand and left gas storage facilities with inventories about 21.5% above their historical five-year averages.
“Expected 2023 natural gas prices are around 44% lower than forward market expectations in December,” Moody’s said. That has resulted in 2023 expected power prices more than 40% lower than 2022 in some regions, according to the research note which cited S&P Global Market Intelligence data.
However, gas and power prices in the Western states “remain more resilient,” Moody’s noted.
“Natural gas prices in California, Oregon and Washington are around 80% higher compared to Henry Hub, leading to only a modest decline in Western US power prices for 2023,” the firm said. Those states saw increased winter heating demand resulting in gas storage levels below historical averages, and also face gas pipeline constraints and low hydroelectric power output in some areas, Moody’s said.
In the Mid-Atlantic, PJM in February revealed capacity prices in its latest auction fell 15% across most of its footprint to $28.92/MW-day from $34.13/MW-day in the previous auction. There were price increases in a growing number of areas, however.
“The substantial increase in capacity prices in these [locational delivery areas ] reflects transmission constraints with the rest of PJM and generation retirements,” Moody’s said. “The mixed results indicate a possible bottoming of PJM capacity prices, especially as power prices decline from their 2022 peak.”
However gas exports, which support higher prices, are expected to rise this year and next, according to data from the U.S. Energy Information Administration.
Exports of liquefied natural gas will average 12.1 Bcf/d in 2023, about 14% higher than last year, according to the agency. And exports in 2024 are expected to increase another 5%, EIA said.
“We forecast U.S. LNG exports to rise because of high global demand as LNG will continue to displace pipeline natural gas exports from Russia to Europe,” EIA said. “So far this year, mild winter temperatures and fuller-than-average storage resulted in reduced LNG prices.”
Conservation groups have been working to slow LNG exports, pointing to climate concerns as well as the price implications for domestic consumers. On Monday, several groups sued the U.S. Department of Energy over LNG export policy.
The Sierra Club, Center for Biological Diversity, Delaware Riverkeeper Network, Environment America and Friends of the Earth, say DOE has failed to respond to a petition calling for the agency to issue LNG regulations that determine whether exports are in the public interest.
“Communities targeted by LNG export operations deserve an updated, transparent process in which their views and input will be considered,” Maya K. van Rossum, who leads the Delaware Riverkeeper Network, said in a statement. “This petition is a necessary step to hold the Department of Energy accountable for its decisions to authorize fossil fuel proliferation in the midst of the climate crisis.”
