Energy Market Update - Late February

Published: February 22, 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.    

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
      • 177 gas rigs (-7 vs last week) vs. 153 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
        • Production currently at an all-time high:  Feb 2018 lower 48 production is currently averaging ~7 Bcf/d higher than Feb 2017.
      • 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
      • Tomorrow’s storage report - Seeing estimates of ~110 Bcf withdrawal (last year – 92 Bcf, 5 year avg - 145 Bcf)
      • La Niña conditions have arrived and likely to stick around:  NOAA predicting a weak La Niña for the remainder of winter 2017-18.
        • Coldest part of the winter has effectively passed.  Warm weather on the immediate horizon.
        • Anticipation that end-of-season storage will be healthier than previously expected.

 Gas Market Highlights:

  • Last week was the 14th storage report and 13th withdrawal of the 2017-2018 Withdrawal Season.  Withdrawal (194 Bcf) was in line with analysts’ expectations (162 Bcf – 207 Bcf).  Storage is now 577 Bcf below last year’s level and 433 Bcf below the 5 year average.
    • Year over year deficit has increased 14.7% since the previous week.
    • Deficit under 5 year average has increased 10.2% from the previous week.

 

  • March 2018 NYMEX currently trading at 2.652 after opening at 2.638.

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 6-12+ above normal for most of the East, 2-12 below normal for the western US.
  • Week following:
    • 2-6 above normal for most of the East, 2-6 below normal for the western 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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