Energy Marketing Update - Early Winter

Published: December 5, 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.)
      • ~15,000MW 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.
    • Colder weather expected mid-December

 

Reasons to Wait:

  • With natural gas production growth continuing into 2018 and significantly higher rig counts versus last year, the market could fall if incremental demand doesn’t keep up.
    • Production
      • 176 gas rigs (-1 last week) vs. 118 gas rigs last year.
      • Overall production at record highs and averaging 5.0 Bcf/d higher than this time 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 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 2ndstorage report and 2nd withdrawal of the 2017-2018 Withdrawal Season. Withdrawal (46 Bcf) was within analysts’ expectations (22 Bcf – 63 Bcf). Storage is now 319 Bcf below last year’s level and 121 Bcf below the 5 year average.
    • Year over year deficit has increased 17.7% since the previous week.
    • Deficit under 5 year average has increased 19.8% from the previous week.

  • January 2018 NYMEX currently trading at 3.173 after opening at 3.131.

 

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 1-6 above normal for the eastern and western US.  3-9 above normal for the central US.
  • Week following:
    • 1-3 above normal for the East Coast, overall average temperatures expected 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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