Energy Market Update - Late January

Published: January 25, 2018

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 Q12018.
  • Market will turn bullish quickly depending on weather.
    • Attention is on cold weather forecasts and the associated heating demand (Heating Degree Days.)
      • Natural gas prices have recently rallied after sustained cold temperatures – storage is now close to the bottom of the 5 year range.
      • Analysts are anticipating another large withdrawal (276 Bcf) on this week’s storage report.
      • Forecasts are predicting a polar vortex developing in early February.

 

Reasons to Wait:

  • With natural gas production growth projected in 2018 and significantly higher rig counts versus last year, the market could fall if incremental demand doesn’t keep up.
    • Production
      • 189 gas rigs (+2 vs last week) vs. 142 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 for the last year.
        • Forecasted to reach 64.07 Bcf/d in February, up from 63.18 Bcf/d in January.
    • Demand
      • Warmer weather expected for the next 10+ days.
      • 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 10thstorage report and 9th withdrawal of the 2017-2018 Withdrawal Season.  Withdrawal (183 Bcf) was on the lower end of analysts’ expectations (166 Bcf – 208 Bcf).  Storage is now 230 Bcf below last year’s level and 203 Bcf below the 5 year average.
    • Year over year deficit has decreased 11.3% since the previous week.
    • Deficit under 5 year average has decreased 5.2% from the previous week.

  • February 2018 NYMEX currently trading at 3.509 after opening at 3.541.

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 1-6 above normal for western, central, and northeastern US, 1-6 above normal for the West Coast.  0.5-3 below normal in the South.
  • Week following:
    • 1-6 above normal for most of the US, 0-2 below normal for the Southeast and New England.

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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