With wholesale electricity prices set to soar this summer, the Federal Energy Regulatory Commission will closely monitor the natural gas and power markets for possible market manipulation, according to FERC Chairman Richard Glick.
Industry executives have told Glick the recent run-up in natural gas prices isn’t fully supported by market fundamentals, he said, noting the agency has jurisdiction over abuse in the gas markets. “That's something we need to consider and take a look at,” Glick said Thursday at FERC’s monthly meeting.
Reflecting a trend in other regional markets, on May 13, forward power prices in the PJM Interconnection averaged about $130/MWh for June through September, up 173% from $47.64/MW, last year’s average settled price for the same period, FERC staff said in a summer assessment released Thursday. The forward prices are driven by higher natural gas prices, expectations for a hot summer and a slight increase in demand, FERC staff said.
Natural gas prices typically help set wholesale electricity prices, and both are popping, according to the FERC report.
Average futures prices at the Henry Hub, a key trading hub in Louisiana, jumped 88%, to $7.06 per million British thermal units, for May through September from last summer’s settled price average of $3.75/MMBtu, FERC staff said.
The higher gas futures prices appear largely caused by forecasts for a tight balance between supply and demand, with liquefied natural gas exports being a major source of demand growth, according to the report.
“Really, it's all LNG, and I think we know LNG demand is not going to go down. It's going to continue to go up,” Glick said. “Obviously, that has a big impact on electricity prices.”
U.S. natural gas exports will likely increase this summer, mainly because of international demand for LNG, according to the report. The U.S. Energy Information Administration expects LNG exports to average 11.8 billion cubic feet a day in June, July, August and September, up from 9.5 Bcfd last summer, FERC staff said. The exports would comprise about 12.2% of the expected 96.9 Bcfd of U.S. natural gas production during the summer.
FERC staff expects that higher gas prices, coupled with higher forecast temperatures, will put upward pressure on electricity prices.
Forward electricity prices for June through September in the California, New England and Texas markets are up 77% to 223% from last year’s settled prices, FERC staff said.
Market factors such as higher LNG exports are affecting natural gas prices, Glick said during a media conference call.
“There's certainly market fundamentals supporting a price increase from what it was last summer, but [industry executives] say it's a lot higher than it should be,” Glick said. “So that's something we're taking a look at, but I don't want to suggest that we found anything.”
FERC is also continuing to investigate possible market manipulation during last year’s Winter Storm Uri, according to Glick.
“We did find some anomalies, so that's being investigated,” Glick said. “They're still going through all the allegations, the evidence that showed up, and staff will make a recommendation to the commission at some point as to whether to proceed or not with a full-blown enforcement proceeding.”
The agency is also monitoring the power markets for potential market abuse, Glick said.