Reasons to Buy:
- Weather normalized demand continues to grow.
- Several new LNG facilities coming online in the next year. At least 90,000MW of new natural gas generation currently being developed (150+ new plants to be online by 2020.)
- Mexican gas exports expected to double by 2019.
- Market will turn bullish quickly depending on how hot it gets (cooling demand.)
Reasons to Wait:
- Colder than average weather has largely kept prompt month gas under $3.
- Continued cool weather forecasted for the first half of September.
- With natural gas production growth projected and significantly higher rig counts versus last year, the market could fall if incremental demand doesn’t keep up.
- 183 gas rigs (+3 this week) vs. 88 gas rigs last year.
- Since June, production has averaged 1.0 BCF/day higher year-on-year.
- Gas consumption (excluding exports) this injection season has averaged nearly 4.0 BCF/d less than last year, mostly because of the power sector.
- Harvey has impacted demand:
- Power outages and rain providing cool weather.
- Mexican exports down 1.0BCF/day post-Harvey.
Gas Market Highlights:
- Last week was the 21ststorage report and 21st injection of the 2017 Injection Season. Injection (30 BCF) was within analysts’ expectations (22-35). Storage is now 239 BCF below last year’s level and 8 BCF above the 5 year average.
- Year over year deficit has increased 7.2% since the previous week.
- Surplus over 5 year average has decreased 82.2% since the previous week.
- October 2017 NYMEX trading at 2.972 after opening at $3.013.
- Next 7 days:
- 2-6 below normal for most of the East and Midwest.
- Week following:
- 0.5-3 below normal for most of the East and Midwest.
Note: Although natural gas does not necessarily indicate where electricity pricing is at, it is good as a general barometer for electricity markets as a whole. When gas gets expensive, so does electricity generated from natural gas.