Spring has sprung. In the Pacific Northwest (PNW) it is that time of year when all eyes – that’s energy market eyes – turn to water. That is, the outlook for the accumulation of water in the region for the generation of hydropower.
[Posted by contributor Jeff Richter]
In terms of water levels, this year started out well below normal (and well below last year), but as we approach Q2 a late run of precipitation has put a bind on April. As usual for this time of year, the expectation has been for the runoff to occur in the May-June time period, thus the markets have been priced accordingly (which means backing out natural gas from the power gen stack). But each year brings its own patterns of precipitation, snow pack, melt, and hydro-vs-gas competition that impacts the market for the entire season, and this year is no different. The questions being asked are simple, how much water is up in the mountains, how is it situated, and have planners made the right assumptions necessary to handle flood control requirements on the system.
These questions are some of the most important determinants of both power and gas prices in the PNW region. Not surprisingly in this year of strange weather patterns, Mother Nature has thrown the PNW water levels a late season surprise. Let’s look at some of the details.
The PNW saw the water year steadily move up over the past few months (but still below normal). Since the start of March, the pace has picked up considerably, with above average precipitation hitting the region. Not only is it wet, it is cold. The below normal temperatures have pushed the temperatures down below freezing, thus dumping more snow in the Snake River Basin. Combine this with the already healthy Canadian snowpack levels; the PNW has seen its water year increase by 8%. That means even more water will be coming with the spring thaw.
The table below illustrates the magnitude of this trend. For those not familiar with the PNW water/hydro world, a few words of explanation are in order.
The table shows how the Northwest River Forecast Center (NWRFC – a unit of the National Oceanic and Atmospheric Administration – NOAA) has changed their water outlook for the April-August 2012 period. At the first of the year NWRFC expected 81.2 millions of acre feet (MAF) of water at The Dalles dam on the Columbia River, which was 87.3% of normal for this Apr-Aug time period. Over the next two months they steadily increased their forecast 3-5 MAF per month bringing us to 88.7 MAF at the beginning of March. Then just a few days ago, NWRFC increased their outlook by a huge 7.3 MAF, putting the percent-of-normal at 103.1%. That’s a lot of water.
So what does this all mean? At today’s reservoir levels, there won’t be enough room to hold all this water when it comes down the river. That means that hydro storage facilities will need to dig a “bigger hole” in the month of April to meet flood control targets, thus putting a lot more water on the system – in the month of April. And there could be even more water on the way. If temperatures turn warmer in the coming month, the lower elevation snowpack will melt thus putting even more water on the system and ultimately though the generation turbines.
More water through the turbines means only one thing: more megawatts of hydro power. The more hydro power you’ve got, the less power you need from other sources – like gas and coal generation. On top of the hydro, the PNW has seen an increase in overall wind generation capacity with the addition of 900 mw over the past year. At the end of the day, none of this is positive for natural gas prices in the PNW. Those prices might just be under water.
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