Power Markets

A Time to Hedge Power

Power Markets for Bitcoin Miners, 12/26/23

David Bellman

Key Takeaway #1

Winter has been extremely mild, but the forecast is now showing a more normal winter.

Key Takeaway #2

The fundamentals still show that even normal weather may not be enough to lower natural gas prices to balance out the fundamentals.

Key Takeaway #3

Renewable generation, in particular solar, continues to grow in the US

Key Takeaway #4

Coal fundamentals can impact natural gas demand, particularly if inventories of coal get high. • Hedging some of your power exposure is advisable, as hedging is about developing a systematic process for business continuity. • Hash and difficulty are rising, lowering mining economics. • Gas and power changes have been moderating

Could we be seeing a bottom for natural gas prices? The weather forecast is not all red like we showed last time (see next slide).

Still, the balance has been so warm that we may see a true bottom for natural gas shut in production. Shutting in production comes at extreme points in the fundamentals. Gas storage has a seasonal component whereby storage of gas is scheduled contractually to fill and withdraw. Gas in certain regions will turn negative when caught in a bind and/or when the economics of oil drive the natural gas price down. Drilling for oil will naturally have some impact on natural gas. With crude oil prices north of $70/bbl, natural gas is essentially a by-product or oil production. High oil production is actually bearish for natural gas. Combining high oil production with mild temperatures in the winter will result in certain regions searching for that shut-in price.

Gas-centric regions will likely be the first regions to shut in. Shutting in production is not an easy decision to make. It carries costs and requires operational changes that could make the well irreversible, and therefore requires analysis in advance of the decision.

The other key question is where renewable and coal generation are in relation to the overall power markets. High renewable and coal generation overall is negative for the natural gas demand. Renewable generation is up to nature and existing generation capacity. Solar continues to be built in the US and will continue to be the leading capacity to the grid (see next slide). Coal generation has its own fundamentals, with supply/demand and storage playing a crucial role. If coal inventory gets high as a result of set procurement schedules, eventually coal will be used regardless of price. This puts downward pressure on natural gas and can naturally lower wholesale prices.

Given where we sit with the fundamentals, it makes sense given the drop in the forward curve to hedge some of your power risk if contracts are tied to wholesale markets. Calling the bottom or top is not the prime objective of a hedging strategy – you need a systematic process. Weather can easily turn the market sentiment, and the upside/downside are becoming asymmetrical. The power markets are interwoven, with multiple commodities and variables. A risk approach works best when looking at hedging power due the level of uncertainty. At BitOoda, we have decades of experience to help you navigate the power markets.

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Could we be seeing a bottom for natural gas prices? The weather forecast is not all red like we showed last time (see next slide).

Still, the balance has been so warm that we may see a true bottom for natural gas shut in production. Shutting in production comes at extreme points in the fundamentals. Gas storage has a seasonal component whereby storage of gas is scheduled contractually to fill and withdraw. Gas in certain regions will turn negative when caught in a bind and/or when the economics of oil drive the natural gas price down. Drilling for oil will naturally have some impact on natural gas. With crude oil prices north of $70/bbl, natural gas is essentially a by-product or oil production. High oil production is actually bearish for natural gas. Combining high oil production with mild temperatures in the winter will result in certain regions searching for that shut-in price.

Gas-centric regions will likely be the first regions to shut in. Shutting in production is not an easy decision to make. It carries costs and requires operational changes that could make the well irreversible, and therefore requires analysis in advance of the decision.

The other key question is where renewable and coal generation are in relation to the overall power markets. High renewable and coal generation overall is negative for the natural gas demand. Renewable generation is up to nature and existing generation capacity. Solar continues to be built in the US and will continue to be the leading capacity to the grid (see next slide). Coal generation has its own fundamentals, with supply/demand and storage playing a crucial role. If coal inventory gets high as a result of set procurement schedules, eventually coal will be used regardless of price. This puts downward pressure on natural gas and can naturally lower wholesale prices.

Given where we sit with the fundamentals, it makes sense given the drop in the forward curve to hedge some of your power risk if contracts are tied to wholesale markets. Calling the bottom or top is not the prime objective of a hedging strategy – you need a systematic process. Weather can easily turn the market sentiment, and the upside/downside are becoming asymmetrical. The power markets are interwoven, with multiple commodities and variables. A risk approach works best when looking at hedging power due the level of uncertainty. At BitOoda, we have decades of experience to help you navigate the power markets.

‍

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 11 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

Could we be seeing a bottom for natural gas prices? The weather forecast is not all red like we showed last time (see next slide).

Still, the balance has been so warm that we may see a true bottom for natural gas shut in production. Shutting in production comes at extreme points in the fundamentals. Gas storage has a seasonal component whereby storage of gas is scheduled contractually to fill and withdraw. Gas in certain regions will turn negative when caught in a bind and/or when the economics of oil drive the natural gas price down. Drilling for oil will naturally have some impact on natural gas. With crude oil prices north of $70/bbl, natural gas is essentially a by-product or oil production. High oil production is actually bearish for natural gas. Combining high oil production with mild temperatures in the winter will result in certain regions searching for that shut-in price.

Gas-centric regions will likely be the first regions to shut in. Shutting in production is not an easy decision to make. It carries costs and requires operational changes that could make the well irreversible, and therefore requires analysis in advance of the decision.

The other key question is where renewable and coal generation are in relation to the overall power markets. High renewable and coal generation overall is negative for the natural gas demand. Renewable generation is up to nature and existing generation capacity. Solar continues to be built in the US and will continue to be the leading capacity to the grid (see next slide). Coal generation has its own fundamentals, with supply/demand and storage playing a crucial role. If coal inventory gets high as a result of set procurement schedules, eventually coal will be used regardless of price. This puts downward pressure on natural gas and can naturally lower wholesale prices.

Given where we sit with the fundamentals, it makes sense given the drop in the forward curve to hedge some of your power risk if contracts are tied to wholesale markets. Calling the bottom or top is not the prime objective of a hedging strategy – you need a systematic process. Weather can easily turn the market sentiment, and the upside/downside are becoming asymmetrical. The power markets are interwoven, with multiple commodities and variables. A risk approach works best when looking at hedging power due the level of uncertainty. At BitOoda, we have decades of experience to help you navigate the power markets.

‍

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification 11 David Bellman, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or through http on or ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using its brokerage services. BitOoda makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda.

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A Time to Hedge Power

Power Markets for Bitcoin Miners, 12/26/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

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