Energy Marketing Update - End of 2017

Published: December 14, 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.
        • Forecast to potentially reach 12 Bcf/d by 2020.
        • Several new LNG facilities coming online in the next year.
          • Dominion Energy’s (0.7 Bcf/d) Cove Point terminal expected to online by end of this year.
  • Market will turn bullish quickly depending on weather.
    • As we shift to the withdrawal season, attention shifts to cold weather forecasts and the associated heating demand (Heating Degree Days.)
    • 7 day forecast is predicting colder weather for the Northeast.

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
      • 180 gas rigs (no change from last week) vs. 125 gas rigs last year.
      • “Natural gas production has shown year-on-year growth since June 2017, and inventories are within 1% of the five-year average level, which may moderate implied volatility.” – EIA Short-Term Energy Outlook Dec 2017
      • Gas production out of the Big Seven (Anadarko, Appalachian, Permian basins and Bakken, Eagle Ford, Haynesville and Niobrara shales) has increased every month since January.
        • Forecasted to reach 61.71 Bcf/d in December, up from 60.93 Bcf/d in November.
    • Demand
      • Gas consumption (excluding exports) this past injection season 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 4thstorage report and 1st injection of the 2017-2018 Withdrawal Season. Injection (2 Bcf) was on the upper end of analysts’ expectations (-14 Bcf – 7 Bcf). Storage is now 264 Bcf below last year’s level and only 36 Bcf below the 5 year average.
    • Year over year deficit has decreased 14.6% since the previous week.
    • Deficit under 5 year average has decreased 66.4% from the previous week.

  • January 2018 NYMEX currently trading at 2.715 after opening at 2.696.

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 1-6 below normal for the East Coast, 1-6 above normal for western/central US.
  • Week following:
    • 0-3 below normal for the West Coast, 1-6 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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