Mid-November Energy Market Update

Published: November 21, 2017

Here is the mid-November energy market update:

 

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.)
      • ~15GW set to come online in 2018.
    • Gas exports continue to increase:
      • Mexican gas exports expected to double by 2019.
      • LNG export capacity is rapidly growing.
        • September and October deliveries for LNG exports averaged 2.0 Bcf/d higher than last year.
        • 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.
    • Going into winter with the lowest stocks in three years.
    • As we shift to the withdrawal season, attention shifts to cold weather forecasts and the associated heating demand (Heating Degree Days.
      • Total demand per degree day is currently at a record level and increasing.
    • Major weather models are in disagreement about the 11-15 day forecast (GFS is bullish, ECMWF is bearish).

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
      • 169 gas rigs (no change since last week) vs. 115 gas rigs last year.
      • Overall production hitting record levels (over 76 Bcf/d.)
      • 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 61.71 Bcf/d in December, up from 60.93 Bcf/d in November.
        • 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.
        • April – August demand from power generation averaged ~3.8 Bcf/ day lower vs. last year.
      • La Niña conditions have arrived and likely to stick around:  NOAA predicting a weak La Niña for the remainder of winter 2017-18.

 

Gas Market Highlights:

  • Last week was the 31ststorage report and 31st injection of the 2017 Injection Season.  Injection (15 Bcf) was within analysts’ expectations (-3 Bcf – 32 Bcf).  Storage is now 219 Bcf below last year’s level and 71 Bcf below the 5 year average.
    • Year over year deficit has increased 21.7% since the previous week.
    • Deficit under 5 year average has increased 73.2% from the previous week.

 

  • December 2017 NYMEX currently trading at 3.080 after opening at 3.078.

 

 

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 1-3 below normal for most of the East and West Coast.  1-6 above normal in the central US.
  • Week following:
    • Average temperatures for the East Coast, 0.5-3 above normal for the rest of the US.

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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