Energy Market Update - Late May

Published: May 21, 2018
When it comes to energy, businesses do not always have the time to track the market and find the sweet spots. The market can be confusing, but Diversegy makes it easy for business owners to see the energy market's increases and decreases. Our energy experts constructed both sides of the table: reasons to buy now and reasons to wait. Diversegy thrives on full transparancy when it comes to your energy, so take a full read and decide for yourself what makes sense for your business. Interested in getting a full analysis? Click the Free Analysis button either at the bottom of this post or at the top right corner of your screen.
 
Reasons to Buy:
  • Weather normalized demand continues to grow. Demand (5/10 – 5/16) increased 4% from the previous week (3.3% higher than last year during the same period).
    • 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 2.0 Bcf/d this year.
        • Annual average of 4.6 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. 
    • “If confirmed in the monthly data, the April 2018 injection would be the smallest April injection since 1983. Preliminary data indicate April temperatures were the coldest for that month in the past 21 years, which contributed to low injections.” – EIA Short-Term Energy Outlook May 2018 
    • With warmer weather showing up, attention has shifted 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
      • 200 gas rigs (+1 vs last week) vs. 180 gas rigs last year.
      • “EIA forecasts that natural gas production will average 80.5 Bcf/d in 2018, establishing a new record.”– EIA Short-Term Energy Outlook May 2018
        • Dry production averaged 79.5 Bcf/d from May 10-16 (+8.5 Bcf/d or 12.0% 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 68.119 Bcf/d in June, up from 67.027 Bcf/d in May.
    • Demand
      • Production is still stronger than demand.  EIA is projecting storage growth will outpace the five year average this injection season.
Gas Market Highlights:
  • This week was the 5th storage report and 3rd injection of the 2018 Injection Season.  Injection (106 Bcf) was within analysts’ expectations (99 Bcf – 118 Bcf).  Storage is now 821 Bcf below last year’s level and 501 Bcf below the 5 year average. 
    • Year over year deficit has decreased 4.87% since the previous week.
    • Deficit under 5 year average has decreased 3.65% from the previous week.

  • Jun 2018 NYMEX currently trading at 2.847 after opening at 2.853.

Weather Highlights:                                                                                                                                                                                                                                            
  • Next 7 days:
    • 3-6 above normal for the eastern US and Northwest, 1-2 degrees below normal for the rest of the US.
  • Week following:
    • 1-6 above normal for most of the 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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