Slide 1

Docket No. AD06-3 | Item No. A-3 | October 19, 2017

Winter 2017-18

Energy Market Assessment
Slide 2

Few Major Risks for Winter Outlook

• Less storage, higher prices than in 2016 will return natural gas market to more 

moderate conditions.

• Growth in LNG, piped exports are propelling natural gas demand.

• Natural gas production growth over the winter will exceed incremental demand.

• Market for natural gas is well supplied overall, except for unexpected weather- driven events or operational issues.

• Electric capacity is adequate in all regions.

• Electricity markets are adjusting to plentiful gas supply.

• Energy Imbalance Market is expanding, creating opportunities for market 

efficiencies.

Good morning Mr. Chairman and Commissioners. The Office of Enforcement presents its 2017-

18 Winter Energy Market Assessment. The Winter Energy Market Assessment is staff’s 

opportunity to look ahead to the coming winter and share our thoughts and expectations about 

market preparedness, including an assessment of risks. Natural gas markets are entering this 

winter with a strong storage base and an expanding pipeline network that is delivering more 

supply to local markets and beyond. A lag in natural gas production over the past year-and-ahalf is expected to give way to renewed production growth as a result of increased drilling 

activity, while LNG projects in the Gulf and East coasts are expected to increase demand. 

Weather forecasts call for warmer than normal winter temperatures that look to moderate 

demand in the most sensitive markets, for example the Northeast, during the upcoming season. 

In the electric markets, electric capacity is sufficient in all regions based on current load 

forecasts. Since the extreme winter events of 2014, grid operators in the East have paid closer 

attention to winter readiness and reliability. For example, PJM and ISO New England continue 

to phase in performance requirements for capacity resources and the RTOS and ISOs have 

initiated other programs and procedures that focus on winter readiness. In the West, the 

Energy Imbalance Market (EIM) continues to expand this winter with the addition of Portland 

General Electric. These developments are expected to improve electric market operations in 

the winter months. Both the natural gas and electricity markets are unlikely to be impacted by 

long-lasting outages from hurricanes Harvey and Nate, which collectively forced the closure or 

reduced operations of more than 10 refineries in Texas and Louisiana in late August and early 

October, respectively. 
Slide 3

Forecasts Call For Warm Winter

Source: National Oceanic and Atmospheric Administration

Current long-term temperature forecasts for the winter months indicate the greatest probability 

is for a warmer than normal winter throughout most of the continental United States. The 

National Oceanic and Atmospheric Administration, at this time, predicts that the El Niño-La Niña 

effect will be neutral this winter. A neutral effect generally means that average Pacific Ocean 

temperatures will have little influence on continental United States temperatures or 

precipitation. These forecasts suggest that fuel and electric demand will likely be moderate this 

winter. However, there is always the possibility of extreme weather events, which can 

dramatically alter short-term demand.
Slide 4

After Storage-Heavy 2016, Gas 

Markets Relatively Tighter in 2017

• Natural gas demand 2.4 Bcfd 

lower than in 2016

• LNG, pipeline exports increased, 

but power burn down sharply 

from last year

• Henry Hub spot prices $0.50 

higher than in 2016

• Natural gas futures remain 

below $3.50/MMBtu

• Natural gas stocks remain near 

the 5-year average 

• However, natural gas storage 

150+ Bcf lower than in 2016

• Growth in the Appalachian Basin 

increases U.S. output by 1.6 Bcfd

• Declines in Texas, the Rockies 

offset some of Appalachia’s gains

Storage Prices

Supply Demand

Thus far in 2017, the natural gas market has charted a very different course than in 2016. 

Where 2016 was dominated by an abundance of storage volumes that demand was slow to 

pare back, 2017 has seen slower production growth that has resulted in lower storage levels. 

However, these stocks are hovering near the five-year average, outweighing early October 

storage levels in five of the past 10 years. From this robust base, the natural gas market should 

be positioned to meet anticipated needs for natural gas throughout the winter. Of course, this 

outlook could be affected by unexpected major weather events or significant operational issues.

Compared to a year ago, spot natural gas prices today are averaging 50 cents higher at Henry 

Hub, making natural gas less competitive as a fuel source for power generation in some regions. 

However, gains in exports, such as pipeline deliveries to Mexico and LNG deliveries to 

international markets, have partially offset the domestic decline in demand. On the supply side, 

production gains have not been as strong as in 2014 and 2015, as decreasing output in Texas 

and the Rockies mitigated some of the production gains in Appalachia. Looking toward this 

winter, prices are likely to average at or near the low levels seen in 2016, outside of weatherdriven peak days during which prices may surge higher. 
Slide 5

Futures Prices Signal Winter 

Strength In Some Areas

Sources: Bloomberg, ICE

Basis futures show prices 

for January and February 

of each year as taken on 

Oct. 1.

 $-

 $2

 $4

 $6

 $8

 $10

Algonquin

(New

England)

Transco Zone

6 NY (New

York City)

Chicago CityGatesDominion

South

(Marcellus)

Southern

California

Border

Henry Hub

U.S. Natural Gas Futures ($/MMBtu)

2015-16 2016-17 2017-18

Basis futures prices are signaling market expectations for slightly higher prices in New England 

during the winter, while many other regions see some relief from 2016 levels. Henry Hub 

futures prices averaged in the low $3/MMBtu range for January and February, a few cents 

below last year’s market expectations going into winter. Futures prices in Southern California 

and in the Midwest are similarly showing a slight drop from 2016 prices, while New York City 

futures are more than one dollar lower, though still near $8/MMBtu. New pipeline connections 

from Appalachia into the Northeast and Midwest helped to tame winter prices in those 

markets, while New England is still facing capacity constraints during peak conditions.
Slide 6

Relatively Higher Natural Gas Prices 

Spur Competing Fuels in 2017

Source: U.S. Energy Information Administration

0%

10%

20%

30%

40%

2012 2013 2014 2015 2016 YTD2017

Gas Vs. Coal as Percent of U.S. Power Generation Mix

Gas Coal

Throughout 2017, slightly higher gas prices in some regions, such as the Midwest and 

Southeast, have made competing fuels—namely coal—more competitive for power generation. 

This led to some relative shifts in fuel usage patterns, with coal overtaking natural gas on 

average thus far in 2017 after being supplanted by natural gas in 2016. This dynamic is likely to 

continue through the winter, when coal typically takes a more prominent position in the 

generation mix. 
Slide 7

New Pipelines 

and Additions 

Expand Delivery 

of New Supplies

*Arrows represent

MMcfd of new capacity 

coming online in stated 

regions within stated

timeframe

Sources: FERC, Bentek, 

Company Reports

Gulf Coast

NY/NJ, 

Canada, New 

England

Midwest

The tempering of winter prices in some markets is due in part to the added capacity linking 

relatively cheap Appalachian supply to markets on the East Coast, in the Midwest, and further 

south. Since 2016, nearly 2.5 Bcfd of new field-to-market capacity has been added and another 

3.4 Bcfd is expected to come online between now and April. Collectively, these additions 

provide consumers in markets from New York City to Chicago with cheaper supply from which 

to feed winter needs. Among the expansions and greenfield projects expected to come online 

this winter are TransCanada’s TCO Leach Xpress, which would add 1.5 Bcfd to the Northeast, 

and the Rover Pipeline, which would carry 3.25 Bcfd toward the Midwest. 
Slide 8

Expect An Increase in Natural Gas 

Production This Winter

Source: U.S. Energy Information Administration

68

70

72

74

76

78

80

Apr-16 Nov-16 Apr-17 Nov-17 Apr-18

U.S. Natural Gas Production (Bcfd)

Historical Forecast

After a temporary idling of production growth, United States operators are poised to see strong 

production gains from shale fields across the country. The pace of growth reached an inflection 

point in July, when United States natural gas output increased for the first time in 15 months. 

Expectations are that the trend will continue through the winter, as new pipeline projects come 

online and producers are able to reach higher priced markets.

The Appalachian basin, with the Marcellus and Utica shale plays, outperformed every other 

major producing region in terms of incremental supply over the past several years. In fact, 

overall United States production may have fallen further and faster had it not been for gains in 

the region in early 2017. Marcellus and Utica are expected to grow at a strong pace into the 

spring of 2018. Additionally, production is increasing in the Haynesville Basin in Louisiana and 

the Permian Basin in Texas as production costs have fallen. In total, United States production is 

expected to grow by more than 5 Bcfd year-over-year by April. These production gains could 

further strengthen the natural gas system’s reliability for winter, particularly in and around the 

Northeast.
Slide 9

Structural Increase in Demand 

Driven By Exports

Source: Bentek, 

Company Reports

0.0

1.0

2.0

3.0

4.0

5.0 US LNG Exports (Bcfd)

LNG Feedgas

LNG Feedgas Expected

Capacity

Historical

Recent growth in natural gas demand has come primarily from exports. The commercial startup of the first three trains at Cheniere’s Sabine Pass liquefaction plant in Louisiana, paired with 

increased cross-border flows on pipelines to Mexico, have collectively increased exports by 

more than 3 Bcfd since the start of 2016. This surge in export volume has also been heavily 

concentrated in the Gulf Coast, with Texas and Louisiana accounting for more than 80 percent of 

the incremental demand. The chart above shows the steady increase in flows for LNG exports, 

which recently peaked at 2.9 Bcfd. At times, flows into liquefaction plants have actually 

surpassed nameplate capacity, though the overages came during commissioning and testing of 

new trains in advance of service.

Flows into LNG terminals are expected to increase even more this winter, as the first East Coast 

LNG project—Cove Point—comes online before year’s end. The Cove Point facility has already 

received pipeline deliveries during commissioning and is nearing start-up. It is highly likely, with 

the opening of Cove Point and the commercial start-up of an additional train at Sabine Pass, 

flows into those terminals will collectively surpass 3 Bcfd and stay at that level into spring. 
Slide 10

Residential and Commercial 

Demand Most Sensitive to Weather

Source: Bentek, daily U.S. 

average high temperature and 

sectoral demand for Power 

Generation, Residential & 

Commercial, and Industrials 

from 2005-2017

0

20

40

60

80

0 20 40 60 80 100

Bcfd

Power Generation

Residential & Commercial

Industrial

U.S. Average High Temperature

Weather forecasts made months in advance of the peak winter period rarely predict the full 

magnitude of the season to come. Though early outlooks for this winter call for typical or 

warmer than normal weather, residential and commercial demand is highly sensitive to changes 

in the temperatures that actually occur. Since residential and commercial customers rely on 

natural gas for heating needs, this seasonal factor is amplified during extreme cold events. This 

scatter chart plots daily U.S. average high temperatures against actual demand for three sectors 

from 2005 to 2017. It shows great variability for the residential and commercial sector during

periods of colder temperatures, while industrials and power generators are relatively static. 

Over the past seven winters, the residential and commercial sector has averaged 36 Bcfd, with 

the coldest winter averaging about 10 Bcfd higher than the warmest. This potential for 

variability has strong implications for both short-term price effects and regional reliability, as 

well as long-term storage levels.
Slide 11

Changes In Weather Outlook Could 

Shift Expectations

Source: U.S. Energy 

Information Administration

 -

 1,000

 2,000

 3,000

 4,000

 5,000

Nov Dec Jan Feb Mar Apr

7-Yr Range 2017-18 LO 2017-18 AVG 7-Yr Avg 2017-18 HI

Storage is expected to enter the winter heating season with approximately 3,600 Bcf, relatively 

close to the long-term average. Assuming a normal winter, with a seasonal draw of about 2,000 

Bcf, the market would exit the withdrawal season with approximately 1,600 Bcf, an inventory 

figure slightly below the seven-year average but still within the seven-year range. However, 

sustained cold could alter the storage picture greatly. Colder-than-expected temperatures, 

which boost residential and commercial demand, have a strong effect on storage, which LDCs 

and other consumers use to balance their needs when supplies are tight. Storage withdrawals 

have varied by as much as 1,650 Bcf over the four-month season across the coldest and 

warmest winters.
Slide 12

Aliso Canyon Back In Service But 

Concerns Remain

Source: California Energy Commission

Operational constraints at the Aliso Canyon gas storage facility may continue to pose risks to the 

functioning of natural gas and electric markets in Southern California during peak winter 

conditions. Though the facility has returned to service after an extended outage following the 

2015 leak, 62 of the facility’s 114 wells were taken out of permanent operation, limiting 

injection and withdrawal capabilities. Currently, the Southern California Gas system holds 65 

Bcf in storage, the lowest on record for this time of year since at least 2001 and far below the 

118 Bcf the system has averaged over the past 5 years. This low inventory did not disrupt the 

gas system during the summer with an electric peak near record levels and some periods of 

stressed conditions. It is conceivable, however, that limitations at Aliso Canyon during periods 

of the highest winter demand could challenge regional stability and increase natural gas and 

electricity prices. The recent outages of SoCal Gas Line 235-2 and Line 3000 may also limit 

flexibility in the region. This risk could also be magnified by upstream pipeline issues, like 

further outages or wellhead freeze-offs.
Slide 13

Anticipated Reserve Margins 

Healthy in All Regions 

Source: North American 

Reliability Corporation, 

Draft 2017-18 Winter 

Reliability Assessment

Note: WECC includes U.S. portion only 

0%

20%

40%

60%

80%

100%

FRCC MISO ISO-NE NYISO PJM SERC SPP ERCOT WECC

Reserve Margin

Reserve Margin - Anticipated Reference Margin Level

Preliminary data from NERC’s Winter Reliability Assessment indicates that reserve margins for 

all assessment areas are anticipated to be healthy this winter. The columns shown on this chart 

display the anticipated reserve margins for various regions, while the black bars indicate the 

Reference Margins, which are the minimum reserves required by the state, the RTO, or other 

authority. Electric demand is forecast to be slightly higher in some regions, such as SPP and 

SERC, and slightly lower in others, such as ERCOT and ISO New England. All regions are 

expected to maintain healthy reserve margins for the winter. 
Slide 14

New Plants Continue Shift toward 

Natural Gas and Renewables

Source: U.S. Energy

Information

Administration Form 

No. 860M, June 2017 

MW

-9,000

-6,000

-3,000

0

3,000

6,000

9,000

12,000

15,000

18,000

Apr 2017 - Sept 2017

Oct 2017 - Mar 2018

Retirements Additions

Coal NG Petroleum Solar Wind Other

Note: Based on net winter capacity; “Planned” is all changes with effective dates between Oct. 2017 – Mar 2018 ; excludes AK and HI 

The past few years have seen natural gas-fired plant additions in several parts of the United 

States, replacing retirements of coal capacity and nuclear capacity. This figure shows actual and 

planned capacity additions and retirements between April 2017 and March 2018, as reported to 

the U.S. Energy Information Administration. While nuclear capacity has also retired recently, no 

retirements have occurred or are planned for the period shown.

As shown in the chart, a large share of recent capacity additions has been natural gas-fired or 

renewable. From the end of last winter through the upcoming winter, about 15 GW of natural 

gas capacity have been or will be added across the contiguous United States. The installed 

capacity of renewable resources continues to increase, including significant additions of wind in 

SPP and MISO and solar photovoltaic in CAISO. 
Slide 15

Fuel Diversity Varies by Market Region

Source: U.S. Energy Information Administration Form No. 860M, June 2017 

Note: Percentages based on net winter capacity; Excludes AK, HI, and resources that do not report a BAA; Includes resources with operating status of operating or standby

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CAISO ISO-NE MISO NYISO PJM SPP ERCOT non-RTO/ISO

Percentage of Capacity 

Nuclear

Coal

Hydroelectric

Petroleum

Natural Gas

Non-Hydro Renewables

Other

Any assessment of a market’s preparation for the winter season must take into account capacity 

mix and its resulting fuel diversity. Some regions take extra steps to ensure that there are 

adequate fuel supplies during periods of extreme cold when power generation competes with 

other uses of natural gas for limited supplies. ISO New England is one of the markets most 

affected by winter fuel supply considerations and its Winter Reliability Program will be used to 

manage fuel conditions this winter. The New York ISO has similar challenges in the downstate 

portion of the region because state rules place restrictions on the reliance of natural gas as a 

generation fuel at critical times. Regions with greater reliance on coal-fired generation must 

pay attention to coal delivery issues, especially in areas where coal delivery has been an issue in 

past winters, specifically the Midwest. 
Slide 16

Most Gas-Oil Switching Capability is 

in the Eastern Interconnection

Source: Derived from ABB

Velocity Suite data

Note: Bubble size is based on 

nameplate capacity of 

reported primary fuel

Gas-oil fuel switching refers to the ability of a generator to change between natural gas and oil 

as its generating fuel. This capability is important for winter preparedness, especially in the 

northeast, where natural gas supply can become constrained in the winter. Dual-fuel units not 

only allow for oil to be used as a secondary fuel, but also allow for the storage of oil on-site, 

mitigating fuel deliverability issues. This map shows the concentration of units with gas-oil fuel 

switching capability. New York ISO has the largest proportion of natural gas capacity that is 

capable of gas-oil fuel switching. 
Slide 17

ISO-NE Winter Program Enters its 

Final Year

Source: Derived from ISO New England Data

ISO New England is entering the fifth and final year of the Winter Reliability Program. The 

program provides an incentive for natural gas-fired generation to maintain oil reserves as a 

stand-by fuel during the winter by paying for eligible reserves that are maintained but not used. 

The program also provides for LNG and demand response reserves, but the principal reserve is 

oil. The total cost for last winter’s program was $30.8 million. For the upcoming winter, the oil 

compensation rate has been set at $10.33 per barrel, compared to $10.21 last winter. The total 

quantity eligible for compensation is being determined this month based on generator 

applications.

The program is important for ISO New England because the region is highly dependent on 

natural gas as its predominant fuel for generation and this dependence is increasing due to coal, 

oil, and nuclear generation retirements. During cold weather, natural gas-fired generation 

competes with other natural gas uses for adequate supplies from limited pipelines, which are 

often run at or near capacity. Starting with the winter of 2018-2019, the current Winter 

Reliability Program will be replaced with new Pay-for-Performance capacity rules. 
Slide 18

Portland General Electric Joins EIM

Source: ABB Energy Velocity Suite

This winter season, the Western Energy Imbalance Market (EIM) adds another member, 

Portland General Electric (PGE). PGE began participating in the EIM on October 1, 2017. The 

California ISO operates the EIM to help to balance energy supply and demand in real time, 

leveraging geographically diverse resources. This is particularly important for helping to 

manage unexpected changes in net load and integrate renewable generation.

PGE will make up to 415 MW of its capacity available for EIM transfers in the winter months as 

well as 305 MW available for EIM transfers in the summer months. PGE expects to make EIM 

transfers directly between the PGE BAA and PacifiCorp West BAA using BPA transmission and 

PGE’s on the California‐Oregon Intertie (COI). 

In addition to PGE, five new balancing authorities have announced plans to join the EIM. These 

new entries comprise 16 percent of the Western Electricity Coordinating Council in the United 

States. Moreover, PowerEx, a subsidiary of BC Hydro, plans to join the EIM in 2018, seeking to 

become the first Canadian entity to participate. 
Slide 19

Conclusion

• Staff analysis identifies few major concerns.

• The forecast is for warmer than average weather and lower 

demand.

• The markets appear to be prepared to manage disruptive 

events.

In summation, at this time we do not see major risk factors that would likely lead to significant 

market disruptions during this winter. There is always the possibility of unforeseen events and 

staff will continue to monitor developments within the electric and natural gas markets. We will 

pay particular attention to the issues at Aliso Canyon and in the Northeast. This concludes the 

2017-2018 Winter Energy Market Assessment. We are happy to answer any questions you may 

have.