Energy Market Update - Early May

Published: May 2, 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 exports projected to reach 6.2 Bcf/d (+50%) in 2020.
        • 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.
          • Dominion Energy’s (0.7 Bcf/d) Cove Point terminal began first commercial LNG deliveries in April.
    • Market will turn bullish quickly depending on weather. 
      • Tomorrow’s storage report - Seeing estimates of ~57 Bcf injection (last year: 68 Bcf injection, 5 year avg: 69 Bcf injection)
      • With warmer weather showing up, attention is shifting to cooling demand and its impact on storage.
 
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
      • 195 gas rigs (+3 vs last week) vs. 171 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 averaged 80.1 Bcf/d from April 19-25 (+8.9 Bcf/d or 12.5% higher than last year.)
      • 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 2nd storage report and 2nd withdrawal of the 2018 Injection Season.  Withdrawal (18 Bcf) was within analysts’ expectations (9 Bcf injection - 22 Bcf withdrawal).  Storage is now 897 Bcf below last year’s level and 527 Bcf below the 5 year average. 
    • Year over year deficit has increased 11.0% since the previous week.
    • Deficit under 5 year average has increased 17.4% from the previous week.

 

  • Jun 2018 NYMEX currently trading at 2.759 after opening at 2.760.
Weather Highlights:                                                                                                                                                                                                                                            
  • Next 7 days:
    • 1-6 above normal for most of the northern US, average temperatures in the South.
  • Week following:
    • 2-6 above normal for the West, average temperatures in the East.

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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