Biggins Lacy Shapiro & Company, LLC

How is Coronavirus Impacting Utility, Electric and Natural Gas Prices?


Utilities embracing ‘new normal’ while electric prices flatten, natural gas stabilizes

Now nearly five-plus months into coronavirus-related restrictions, re-opening and re-closures, the global economy remains in flux. Energy prices are no different, given recent restrictions on how utilities can service customers, as well as fluctuations in natural gas, electricity and oil prices.

For C-Suite executives and operations managers monitoring the utility and energy markets while planning for future activity, here is a breakdown of what you need to know:

Utility Service is Impacted

Service from utility companies has long been an important factor in business operations, often determining a site’s capacity, reliability, cost to serve and operating cost – whether it be a manufacturing operation or data center. For companies that need to expand or relocate, utility service – which had slowed dramatically early in the pandemic – has rebounded. Most utilities BLS and Sugarloaf have worked with have adjusted rather quickly amid the challenging times.   

Although face-to-face meetings are still few and far between, limited outdoor, onsite meetings are usually available to discuss service issues and solutions. In addition, many of the utilities have adopted web-based meeting platforms, such as Teams and Zoom, and integrated their GIS systems to visually share information and discuss service options. It is difficult to replace in-person meetings and physical inspections, however, some utilities are sharing more information than they have historically done in the past.   

This adjustment has allowed both utilities customers and site selection clients to gain the information required to determine the infrastructure options to make site selection decisions and service upgrades.

U.S. Electric Consumption

As the U.S. begins to adapt to the new normal, the Energy Information Administration (EIA) recently released an updated forecast suggesting that electric consumption will decline by 4% this year (compared to 2019). Not surprisingly, most of the decline is expected to be in the commercial and industrial sector, with estimates placing usage 7% lower than 2019.   

In the months since lockdown orders were put into place, utilities and transmission grid operators have also seen a significant impact on load curves and peak demand shifts. Power demand was down 8%-9% across the U.S. in late-April, compared to the same time period in 2019, effectively slashing pricing.

An EIA forecast estimates that total U.S. electric power sector generation will decline by 3% in 2020.

Prices

Nevertheless, the EIA is also forecasting relatively flat retail electric prices for the remainder of 2020 with small increases in 2021. The wholesale of electric is expected to be dramatically lower in 2020, ranging from 11% – 53% depending on the region. A combination of lower demand and significantly lower natural gas prices account for the drop. The wholesale price drops are offset by investment increases in transmission infrastructure, generation expenditures and renewal energy, which has increased delivery charges.

Natural Gas Prices Have Stabilized

The 12- and 24-month strip prices remained relatively stable over the last few weeks, settling at $2.421/Dth and $2.473/Dth, respectively. However, they are down significantly from BLS’ last update in May – 12.1% and 14%, respectively. 

Despite these gains, the natural gas environment remains somewhat intertwined with the oil market, in that it may be subject to erratic price moves. This is due to virus-related unease in the market and resulting price fluctuations.

In Closing

The coronavirus continues to have a profound impact on global electricity and utility markets. These complications will likely demand long-term operational adjustments for manufacturers and data center operators, including for future expansion plans. Businesses should monitor developments closely and anticipate project delays as utilities and suppliers adjust to the new normal.

This article was contributed by Tim Comerford, senior vice president of energy-services group and principal of Sugarloaf Associates. Continue monitoring Biggins Lacy Shapiro & Co. (BLS) for ongoing coverage of these respective markets. Visit www.BLSStrategies.com for more information.

Published: 7/23/2020
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