SUMMER 2024 MARKET REVIEW

As we approach the end of August, the focus of the summer typically begins to shift towards things like kids returning to school, parents seeking a more normal schedule, the excitement and optimism of each football team’s upcoming season, and hopefully milder temperatures across our power grids.

Given this, we thought it would be appropriate to give a quick update of how the summer has played out so far, by region and commodity (gas and power).

 Natural Gas/NYMEX Henry Hub

Natural gas went into the summer with some bullish tendencies (upward trending), but by mid-June, higher week-over-week natural gas production numbers robbed the bulls of all their momentum and turned the market bearish. Then this new bearish sentiment in the macro-economic data in late July and early August seemed to jump on the market’s back, pushing prices down even further. As shown in Figure 1, NYMEX Henry Hub futures for Q4 2024 are now trading near their 3-year lows, with calendar years 2025 and 2026 trading at prices not seen since early 2022 when Russia invaded Ukraine and kicked off the European Energy Crisis.

Figure 1. NYMEX Henry Hub Forward Trends, by 5

Texas (ERCOT) Electricity

There was a lot of risk premium baked into forward power prices for this summer’s delivery given the high prices in ERCOT last August and September. However, cooler temperatures in July, the demand destruction in the wake of Hurricane Beryl along with massive growth in utility-scale solar and battery capacity installed since last summer have all contributed to lower Real-Time Price volatility. As shown in Figure 2, market spot prices have more closely mirrored 2020 than any other recent year, which is pretty astonishing given all that’s happened in Texas since the summer of 2020.

Figure 2. ERCOT Real Time Monthly Averages, by 5

This “underperformance” of spot prices has had a bearish (downward trending) impact on future summer prices in ERCOT, where wholesale on-peak prices for next summer have fallen from a high near $110/MWh in early June to $75/MWh by late August, a drop of over 30%. This fall in summer strip prices over the next four years is shown in Figure 3. 

Figure 3. ERCOT Forward Power Price Trends, by 5

New York (NYISO) Electricity

New York has not had as dramatic a summer as Texas has, with wholesale spot prices for this summer looking very similar to last summer. Additionally, forward market premiums going into the summer were fairly reasonable given actual spot clearing prices. Figure 4 shows that forward prices have sold off since their high in mid-May, mostly due to lower forward natural gas prices and a decrease in forward power prices in PJM, the NYISO’s neighbor to the South. These bearish market forces seem to be shaped by reduced natural gas prices and macroeconomic trends, including less aggressive forecasts regarding higher electricity demand from data centers and AI industry growth.   

Figure 4. New York Forward Power Price Trends, by 5

PJM (Midwest & East Coast) Electricity

The electricity story in PJM this summer is very similar to New York. As shown in Figure 5, PJM did see a little more spot price volatility in July, with that month settling at its second-highest hourly average in the last six years. The heat wave during the second and third week of July caused some specific zones in PJM to become more volatile for a few hours, but there were no events that pushed to power grid to its limits.

Figure 5. PJM Real Time Monthly Spot Averages, by 5

Forward prices in PJM for the next four years are shown in Figure 6. This chart shows that declining forward natural gas prices and lessening fears of runaway load growth seem to be the largest drivers of lower forward summer prices in PJM.

Figure 6: PJM Forward Power Price Trends, by 5

Record low natural gas prices have helped to push power prices down in all markets. This will create good energy purchasing opportunities for many clients heading into the last quarter of the year.