Energy Market Update - Late April

Published: April 20, 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.
      • “EIA forecasts U.S. consumption of natural gas to increase by 4.2 Bcf/d (5.7%) in 2018 and by 0.7 Bcf/d (0.9%) in 2019, with electric power generation the leading contributor to this increase.” – EIA Short-Term Energy Outlook Apr 2018.
    • Gas exports continue to increase:
      • EIA projecting net exports to increase from 0.4 Bcf/d last year to an average of 2.2 Bcf/d this year.
        • Annual average of 4.4 Bcf/d projected for 2019.
      • Mexican projected to reach 6.2 Bcf/d (+50%) in 2020.
      • LNG - Dominion Energy’s (0.7 Bcf/d) Cove Point terminal exported its first cargo last month.
        • LNG exports averaged 1.9 Bcf/d in 2017.  With projects scheduled to come online, projected to reach 9.6 Bcf/d by end of next year.
    • Market will turn bullish quickly depending on weather.
      • Tomorrow’s storage report - Seeing estimates of ~23 Bcf withdrawal (last year: 47 Bcf injection, 5 year avg: 38 Bcf injection)
      • “There’s some fear that we won’t get a shoulder season, and if we don’t get a shoulder season, there’s a concern that the market may be tighter than it normally would.” –Phil Flynn from Price Futures Group

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
      • 192 gas rigs (-2 vs last week) vs. 162 gas rigs last year.
      • “EIA forecasts that natural gas production will average 81.1 Bcf/d in 2018, establishing a new record.”– EIA Short-Term Energy Outlook Apr 2018
        • Dry production last week reached a new record high of 80 Bcf/d.
      • 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 66.907 Bcf/d in May, up from 65.829 Bcf/d in April.
    • Demand
      • Coldest part of the year has passed, shoulder months typically carry lowest heating/cooling demand.

Gas Market Highlights:

  • Last week was the 22nd storage report and 21st withdrawal of the 2017-2018 Withdrawal Season.  Withdrawal (19 Bcf) was within analysts’ expectations (9 Bcf – 38 Bcf). Storage is now 725 Bcf below last year’s level and 375 Bcf below the 5 year average.
    • Year over year deficit has increased 4.0% since the previous week.
    • Deficit under 5 year average has decreased 8.1% from the previous week.

 

  • May 2018 NYMEX currently trading at 2.739 after opening at 2.741.

 

Weather Highlights:                                                                                                                                                                                                                                            

  • Next 7 days:
    • 3-9 below normal for most of the US, 0-2 above normal for the Southwestern US.
  • Week following:
    • 3-9 below normal for the eastern half of the US, and 1-3 above normal for the West.

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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