Today's Energy Market and COVID-19: Part 2

April 24, 2020

APPI Energy continuously monitors the energy markets to provide data-driven procurement and consulting strategies. Now is an ideal time to review your energy contracts and possible changes to your energy usage. Conditions are favorable for renewing, as the physical commodity pricing is at an all-time low, keeping in mind that other cost components may be higher.  APPI Energy can help you navigate the energy market to ensure you are able to take advantage of these benefits.

Near-term natural gas prices have fallen dramatically. The combination of the mild 2019-2020 winter and the decline in demand from COVID-19 have pressured natural gas prices downward below the $2.50/MMBtu break-even price for many producers. As natural gas pricing sets the trend for electricity pricing, forward electricity prices have in turn reached all-time lows in some markets. For now, natural gas production remains strong and gas storage levels are roughly 20% above the 5-year average.

Lower natural gas prices will most likely not be sustained for long as prices beyond this year are starting to see upward pressure. Oil and natural gas pricing below the break-even cost tends to slow production and low natural gas prices have caused an increased amount of debt among natural gas production companies.  This results in lower capital expenditure for drilling new wells. The U.S. Energy Information Administration (EIA) expects a decline of 15% in natural gas production in the second quarter of 2020 and another 12% reduction in the third quarter of 2020. The combination of low pricing, 50% reduction of capital expenditure in Global Exploration and Production (E&P) budgets, and the expected further reduction in production of natural gas all lead to the likelihood of natural gas, and therefore electricity, pricing moving aggressively upward for the second half of 2020 and beyond. Those watching the energy markets might want to consider taking advantage of historically low natural gas and electricity prices before the long-term impacts take place.

COVID-19 continuously causes week over week reduction in electricity usage loads as shutdowns continue across many regions. The New York and New England regions have shown a higher reduction in electricity loads based on data for the week ending April 4, 2020. Peak usage times have shifted to later in the day with more people working from home.

APPI Energy is here to serve as your trusted and reliable expert in all things energy.  Contact us today at 800-520-6685.



Energy Resource Council