Diversegy - Early Fall - Late October - Energy Market Update

Published: October 18, 2017

The energy market fluctuates almost as often as there is a hurricane in the gulf these days but it is important to note that change in seasons is when the fluctuation in rates occurs the most. Over the past several years, with the change in temperature being as drastic as 85 degrees on a Monday and a high of 65 degrees on a Tuesday, rates fluctuate almost daily. Below are the reasons to buy and the reasons to wait on buying your energy written by one of our energy experts.

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/d.)
      • Mexican gas exports expected to double by 2019.
      • LNG export capacity is rapidly growing.
        • Started at 0.5 Bcf/d in 2016, currently exporting 2.5 Bcf/d.
        • Several new LNG facilities coming online in the next year.
          • Forecast to potentially reach 12 Bcf/d by 2020.
  • Market will turn bullish quickly depending on weather.
    • Hurricane Nate last week resulted in ~1.7 Bcf/d less production.
    • As we shift to the withdrawal season, attention shifts to cool weather forecasts and the associated heating demand (Heating Degree Days.)

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
      • 185 gas rigs (-2 this week) vs. 105 gas rigs last year.
      • Gas production out of the Big Seven (Anadarko, Appalachian, Permian basins and Bakken, Eagle Ford, Haynesville and Niobrara shales) continues to steadily increase.
        • Forecasted to reach 60.94 Bcf/d in November; up from 60.11 Bcf/d in October.
        • Big Seven production has increased every month since January.
    • 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/d)
      • Mild temperatures expected for the next two weeks.

 

Gas Market Highlights:

  • Last week was the 27thstorage report and 27th injection of the 2017 Injection Season.  Injection (87 Bcf) was within analysts’ expectations (68-91). Storage is now 153 Bcf below last year’s level and 8 Bcf below the 5 year average.
    • Year over year deficit has decreased 4.97% since the previous week.
    • Deficit under 5 year average is unchanged from the previous week.

  • November 2017 NYMEX currently trading at 2.929 after opening at 2.955.

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 2-6 above normal for most of the Northeast and Midwest. 
  • Week following:
    • 0.5-6 above normal in the West and Northeast.

 

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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