A beautiful Monday morning and we start of the day with reports of Construction Spending and ISM Manufacturing Index at 9:00 A.M., followed by Export Inspections at 10:00 A.M. with Cotton System, Fats & Oils and Grain Crushings at 2:00 P.M. and weekly Crop Progress at 3:00 P.M. In the overnight electronic session the December Corn is currently trading at 353 ½ which is 1 ¾ of a cent lower. The trading range has been 356 ¼ to 353 1/4. Investors will be selling any rally as we saw in Friday’s bullish Grain Stocks and Small Grains Summary.
On the Ethanol front the November contract is currently trading 1.481 which is ½ of a cent lower. The trading range has been 1.481 to 1.476. Estimated Volume was 7 contracts traded and Open Interest at 1,157 contracts.
On the Crude Oil front algorithms and technicians are at it again pounding an technically overbought market but in reality this is a fundamentally cheap market in which we will see bottom feeders investors looking to buy value. In the overnight electronic session the November Crude Oil is currently trading at 5030 which is 137 points lower. The trading range has been 5171 to 5021.
On the Natural Gas front the market is getting beaten like the rest of the complex. In the overnight electronic session the November contract is currently trading at 2.927 which is 8 cents lower. The trading range has been 3.025 to 2.913.
— Daniel Flynn
The Energy Report: Rise up
Oil prices are falling on reports of risng OPEC oil production but mainly because of a rising dollar. Reports that Nigerian and Libyan oil production increased caused some selling as well as a report by Baker Hughes that showed the U.S. oil rig count rise by 6 even as the natural gas rig count fell by one. Still reports of problems at a Libyan largest oil field that was shut since Sunday and a pledge by the UAE to reduce production by 139,000 barrels per day in November puts the oil price fate in the hands of the dollar. Yet a proposal by a U.S. Department of Energy may be the biggest story in energy today as the Trump Administration looks to reward Coal and Nuclear on the basis of those forms of energy contributions to the electric grid reliability and resiliency.
Energy Secretary Rick Perry invoked his powers under the Department of Energy Organization Act, has directed by the Federal Energy Regulatory Commission (FERC) to consider a new grid resiliency rule according to Reuters.
“The proposed rule would require independent system operators (ISOs) and regional transmission organization (RTOs) regulated by FERC to implement new electricity market rules compensating eligible power producers for their contributions to reliability and resiliency. Specifically, the (proposed) rule allows for the recovery of costs of fuel-secure generation units that make our grid reliable and resilient,” Perry wrote in a letter to FERC dated Sept. 28. “Such resources provide reliable capacity, resilient generation, frequency and voltage support, (and) on-site fuel inventory,” he explained. “The rule allows the full recovery costs of certain eligible units.”
“Eligible units must … be able to provide essential energy and ancillary reliability services and have a 90-day fuel supply on-site in the event of supply disruptions caused by emergencies, extreme weather, or natural or man-made disasters.” The proposed rule would require ISOs and RTOs to establish “just and reasonable” tariffs for eligible units to recover their full costs and earn a fair rate of return.
Reuters say that U.S. coal-fired and nuclear power producers have complained that the combination of cheap natural gas and growing output from wind and solar power has depressed power market prices. Power prices are now so low in some markets that many coal-fired and nuclear power plants are struggling to cover their long-term costs and are opting to close rather than pay for expensive maintenance and upgrades. Perry noted 531 coal-fired units representing around 59 gigawatts (GW) of generating capacity had closed between 2002 and 2016 with another 12.7 GW scheduled to retire through 2020. Nuclear generators announced the retirement of 4.7 GW of capacity between 2002 and 2016 and have announced a further 7.2 GW of retirements since 2016.
Power markets already regulate and pay power producers for providing a mix of output (GW) and ancillary services. Ancillary services typically include frequency regulation, voltage control, reactive power, stand-by generation and black start capability, all of which contribute to the reliability and resilience of the grid. But for the most part markets compensate power producers for actual generation, with only relatively minor payments for ancillary services and resiliency. Perry wants FERC to order ISOs and RTOs to identify and compensate ancillary services contributing to reliability more explicitly and likely at a higher level.
“There is a growing recognition that … markets do not necessarily pay generators for all the attributes that they provide to the grid, including resiliency.” The stipulation that “eligible units” must have 90 days of fuel stored on site makes clear that the rule is clearly intended to benefit coal-fired and nuclear generating units.
Solar and wind farms do not store fuel and gas-fired power plants do not stockpile anything like 90 days of gas on site, relying instead on pipeline deliveries. “Supply chain disruptions can impact many generators during a widespread fuel shortage event,” according to a recent study written by Department of Energy staff.
“Nuclear and coal plants have advantages associated with onsite fuel storage”, the study noted (“Staff Report to the Secretary on Electricity Markets and Reliability”, DOE, Aug 2017).
Perry has intervened in a long-running debate about how best to safeguard the reliability and resiliency of the grid at a time of rapid change when coal and nuclear are being replaced by renewables and gas. In contrast to the intermittent generation from wind and solar farms, coal-fired and nuclear power plants provide generation that can be controlled and scheduled (“despatchable power”).
Grid managers have been grappling with this problem of increasing intermittency for almost a decade as wind and solar farms provide an increasing share of generation on the grid (and behind-the-meter at customers’ own premises).
One solution has been to couple wind and solar farms with more generation from natural gas to act as a back-up in case of a drop in renewable output. Like coal and nuclear, gas generation is despatchable. In fact, gas is even more valuable for grid controllers because output can be ramped up and down very quickly. Other solutions to intermittency include more long-distance power transmission capacity, more grid-scale electricity storage, and more flexibility in both supply and demand from capacity markets. Coal and nuclear traditionally provided “baseload” power on the grid but it is not clear whether this concept remains relevant in a grid with growing wind, solar and gas generation.
But the increasing share of gas-fired generation on the grid has led to concerns about the increasing integration of the nation’s gas and electricity systems and their vulnerability to a combined disruption.
In the event of a major supply or demand disruption to the country’s gas supplies, there could be a knock-on effect on electricity production. A must read in Reuters. This could be a negative to natural gas. This could bring down the winter strips if passed. It may algo impact natural gas drilling as well.
The other big news for energy today.
Energy Department Urges Pricing Shift Favorable to Coal, Nuclear power plants. The Trump administration is urging independent energy regulators to change how electricity is priced, proposing new rules that would bolster revenue for coal-fired and nuclear power plants.
Reuters reported Friday that in its September survey indicates output from the 13 OPEC members originally part of the deal rose by 60,000 bpd from August. Supply from the 11 members with production targets under the original accord increased by 40,000 bpd. Compared with the levels from which they agreed to cut, in most cases their October 2016 production, the 11 members have reduced output by 998,000 bpd of the pledged 1.164 million bpd. That equates to 86 percent compliance, down from 89 percent in August. August’s total was revised down by 20,000 bpd after a change to the Libyan estimate.Oilprice dot com reports that “Gazprom dethroned ExxonMobil as the top energy company in the world, according to the 2017 S&P Global Platts Top 250 Global Energy Company Rankings. The rankings measure the financial performance of energy firms on four key metrics: asset worth, revenues, profits, and return on invested capital. The list only includes companies that have assets greater than $5.5 billion. For 12 years, ExxonMobil was second to none. But that changed this year – Exxon was ejected from the top spot, and fell all the way to ninth place.”
Oil is under pressure because of the dollar Talk of a more hawkish replacement for Janet Yellen is one reason. Yet it really is too early to be speculating on that! Look to use weakness to buy some long-term calls.
— Phil Flynn
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