Energy Market Update - Late March

Published: March 21, 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 exports setting all-time highs this month.
      • LNG - Dominion Energy’s (0.7 Bcf/d) Cove Point terminal exported its first cargo this month.
    • Market will turn bullish quickly depending on weather.
      • Attention is on cold weather forecasts and the associated heating demand (Heating Degree Days.)
        • Weather models showing colder weather for the next 1-2 weeks.
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 (+1 vs last week) vs. 157 gas rigs last year.
      • “EIA forecasts that natural gas production will average 81.7 Bcf/d in 2018, establishing a new record. That level would be 8.1 Bcf/d higher than the 2017 level and the highest annual average growth on record.”– EIA Short-Term Energy Outlook Mar 2018
        • Lower 48 expected to average over 79 Bcf/d this week – another record.
      • 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 2017.
        • Forecasted to reach 66.119 Bcf/d in April, up from 65.150 Bcf/d in March.
    • Demand
      • Tomorrow’s storage report - Seeing estimates of ~83 Bcf withdrawal (last year – 137 Bcf, 5 year avg - 53 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. 
Gas Market Highlights:
  • Last week was the 18th storage report and 17th withdrawal of the 2017-2018 Withdrawal Season.  Withdrawal (93 Bcf) was in line with analysts’ expectations (86 Bcf – 107 Bcf). Storage is now 718 Bcf below last year’s level and 296 Bcf below the 5 year average. 
    • Year over year deficit has increased 5.6% since the previous week.
    • Deficit under 5 year average has decreased 1.3% from the previous week.

  • April 2018 NYMEX currently trading at 2.638 after opening at 2.677.

Weather Highlights:                                                                                                                                                                                                                                            
  • Next 7 days:
    • 3-9 below normal for most of the Northeast, 1-6 below normal for the West, and 1-6 above normal for the South Central US.
  • Week following:
    • 1-3 below normal for the East, 2-6 below normal for the Central US, and 0-3 above normal for the Northwest.

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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