Natural gas

A few weeks ago on the pages of WPO, we found it amusing how in the span of a week, the narrative on natural gas was that a brutal winter forecast was driving prices to government shut downs were going to mute EIA data, and finally the winter is going to be warm. All these headlines saw the front month future contract (November) trade from $3.20 to $3.60 and back to $3.20 within the week. Well, fast forward two weeks and that same contract closed yesterday sub $3.00.

The reports of data not being delivered because of the shut down were exaggerated and have been reported as scheduled. Yesterday's EIA storage data showed an injection of 80 Bcf which was toward the low end of expectations. The market cared little about what might have been a bullish print as a three day losing streak continued. Of course there were the obligatory headlines that blamed a warmer winter forecast, but the chart below says it all. As long as storage reports continue to build and keep the average above the 5-year trend, without meaningful cuts in production, it's hard to see a bullish trade for now.

Speaking of production, and we aren't sounding any alarms here, but it might be time for a quick refresher course on production. The world of gas drilling is filled with more small businesses than one would think...maybe even mom and pop. Anyway, whenever there is a credit crisis banks pull in lending and small producers feel the crunch as financial liquidity dries up...think credit lines pulled. When natural gas can be hedged or sold well above production costs, it's no big deal. When gas trades lower and margins get compressed, bankers get out calculators and do the math twice.

Recently we've seen some issues in automotive that have sent some small warnings through the credit markets, specifically private credit markets. We aren't going to dissect those, but one of our favorite follows did....Jamie Dimon, JPM CEO. This week JP Morgan released earnings which is great because Mr. Dimon gives great insight into not only his company, but markets and the economy. When asked about a bankruptcy with regard to private credit his response was telling, "I probably shouldn't say this, but when you see one cockroach, there are probably more. And so we should-everyone should be forewarned on this one".

For those of a certain age, you can finish this sentence...."When EF Hutton talks......". Jamie Dimon is our EF Hutton....people listen.

Harvest Season

It's fall and that means harvest season. From the space we sit and write the WPO, a quick turn looking out the window reveals fields of corn. Interesting thing about corn, in the lab there have been experiments where more than two ears have been grown on a stalk. The reason you don't see fields filled with stalks of five ears of corn is because the cellulose structure of the stalk can't support the weight in nature. You're welcome for the Clifford C. Clavin Jr (if you don't know, look it up) trivia, and right, what does that have to do with electricity? Well, give us some leeway here. this might be a seasonal reach.

Pick up any publication or turn on the news and a story about AI is sure to be included. That holds true for this blog as well, as we comment on AI relevant to electricity almost weekly. The conversation almost always includes how much generation will need building to meet load growth....or, ears of corn meeting increased demand like ethanol? Ok, maybe a stretch, but let's go with it....if AI load is ethanol and new generation is more ears of corn, then we need a bigger stalk which is of course, TRANSMISSON!.

Even before datacenter and compute power growth became a regular headline, discussions about the grid and the upgrades needed were being had, albeit not headline making. Over the years we've posted in the WPO some sobering statistics about the age and fragility of the grid. We've also discussed how addressing the need for upgrading and expanding the grid was only part of the story as almost any new project has run into regulation or litigation hurdles, which are big hurdles and often involve long delays. Recently, given the load growth, a new argument has been who is going to pay for it, especially given the need is viewed as coming from datacenters and compute power. That argument has been made from consumer groups to state politicians.

On September 30, the DOE announced that it was terminating 321 financial awards earmarked for 223 projects with a price tag of $7.56 billion which included some transmission projects. The list included part of MISO-SPP Joint Targeted Interconnection Queue (JTIQ). This is a list of five projects that MISO and SPP proposed based on a reliability study. The issue identified was a significant "seam" along the two RTO's systems that posed significant barriers to the development of new generation. In October of 2023, the US Department of Energy committed $464 million of the roughly $1.6 billion for construction. Early reports are that SPP is planning on moving ahead with the projects even if funding is in question. If that's the case, it's fair to assume the cost will fall on consumers which will again, bring out politicians and consumers groups. These groups might have a strong supporter. Yesterday, former FERC chair Mark Christie weighed in with a response the the news Southwest Power Pool is moving forward with JTIQ transmission projects.

These project are all about serving wind and transmission developers, not consumers. Without federal funding, consumers should be held harmless.

So, back to our corn analogy. Corn has a nature issue, transmission has a funding issue. Hard to pick a winner in that one.

Every so often we see some stuff that makes us chuckle. This week we have to give credit to a user on X that goes by EnergyBull @OilGasBull. The math seems correct, the logic is hard to argue.