Diversegy - Early September - Energy Market Update

Published: September 6, 2017

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.
    • Production
      • 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.
    • Demand
      • 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.

Weather Highlights:                                                                                                                                                                                                                                            

  • 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.

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