Diversegy - Early Fall - September and October - Energy Market Update

Published: October 3, 2017

Reasons to Buy:

  • Weather normalized demand continues to grow.
    • At least 90,000MW of new natural gas generation currently being developed (150+ new plants to be online by 2020.)
    • Gas exports continue to increase:
      • July 2017 exports were 31.7% higher than July 2016 (+1.9 Bcf/day)
      • Mexican gas exports expected to double by 2019.
      • Several new LNG facilities coming online in the next year. 
    • Market will turn bullish quickly depending on weather.
      • Warmer weather expected for the next two weeks.
      • ~3 weeks left before we start discussing withdrawals, focus is shifting to winter heating forecasts.

Reasons to Wait:

  • 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
      • 189 gas rigs (-1 this week) vs. 96 gas rigs last year.
      • July 2017 dry gas production averaged 0.4 Bcf/day higher than in July 2016.
    • Demand
      • Gas consumption (excluding exports) this injection season has averaged lower than last year, primarily due to reduced power generation demand.
        • July 2017 power generation demand was 7.9% less than in July 2016 (-2.8 Bcf/day)

Gas Market Highlights:

  • Last week was the 25thstorage report and 25th injection of the 2017 Injection Season.  Injection (58 Bcf) was within analysts’ expectations (50-73).  Storage is now 127 Bcf below last year’s level and 41 Bcf above the 5 year average.
    • Year over year deficit has decreased 6.6% since the previous week.
    • Surplus over 5 year average has decreased 38.8% since the previous week.

  • November 2017 NYMEX currently trading at 2.915 after opening at 2.925.

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 1-6 above normal for most of the Northeast and Midwest.  2-6 below normal in the West.
  • Week following:
    • 1-6 above normal for the East and Midwest.  2-6 below normal in the West.

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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