Energy Market Update - Mid January

Published: January 10, 2018

When it comes to your energy, deciding when to lock in prices is important. What works for one business, may not necessarily work for another. With winter in full swing across the country, natural gas demand is high. You, along with your Diversegy energy expert, should weigh the pros of buying now, the pros for waiting, and choose a plan that best suits your business' energy needs.

 

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).
      • 20,000MW scheduled 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 beginning commercial operations early 2018.
  • Market will turn bullish quickly depending on weather.
    • Attention is on cold weather forecasts and the associated heating demand (Heating Degree Days.)
    • Analysts are anticipating a record-breaking 300+ Bcf withdrawal on this week’s storage report.

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
      • 182 gas rigs (no change vs. last week) vs. 135 gas rigs last year.
      • “Dry natural gas production is forecast to average 80.4 billion cubic feet per day (Bcf/d) in 2018, a 6.9 Bcf/d increase from the 2017 level, which would be the highest year-over-year increase on record.” – EIA Short-Term Energy Outlook Jan 2018
      • 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 63.03 Bcf/d in January, up from 62.27 Bcf/d in December.
    • 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.
        • First 3 weeks of December averaged 9% warmer than normal.
      • La Niña conditions have arrived and likely to stick around:  NOAA predicting a weak La Niña for the remainder of winter 2017-18.
        • Warmer than average temperatures forecasted for the next 14 days.

Gas Market Highlights:

  • Last week was the 8thstorage report and 7th withdrawal of the 2017-2018 Withdrawal Season.  Withdrawal (206 Bcf) was on the lower end of analysts’ expectations (205 Bcf – 243 Bcf).  Storage is now 192 Bcf below last year’s level and 192 Bcf below the 5 year average.
    • Year over year deficit has increased 209.7% since the previous week.
    • Deficit under 5 year average has increased 125.9% from the previous week.

 

  • February 2018 NYMEX currently trading at 2.923 after opening at 2.838.

 

Weather Highlights:                                                                                                                                                                                                                                            

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