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.)
- 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 expected to online by end of this year.
- Market will turn bullish quickly depending on weather.
- As we shift to the withdrawal season, attention shifts to cold weather forecasts and the associated heating demand (Heating Degree Days).
- Colder than average weather forecasted for the next 14 days.
Reasons to Wait:
- With natural gas production growth continuing into 2018 and significantly higher rig counts versus last year, the market could fall if incremental demand doesn’t keep up.
- 184 gas rigs (+1 vs. last week) vs. 129 gas rigs last year.
- “Natural gas production has shown year-on-year growth since June 2017, and inventories are within 1% of the five-year average level, which may moderate implied volatility.” – EIA Short-Term Energy Outlook Dec 2017
- 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.
- Forecasted to reach 63.03 Bcf/d in January, up from 62.27 Bcf/d in December.
- Gas consumption (excluding exports) this past injection season averaged lower than last year, primarily due to reduced power generation demand.
- April – August demand from power generation averaged ~3.8 Bcf/ day lower vs. last year.
- Early December demand was ~6% lower than last year.
- La Niña conditions have arrived and likely to stick around: NOAA predicting a weak La Niña for the remainder of winter 2017-18.
- 10 of the last 12 weeks have been warmer than normal.
Gas Market Highlights:
- Last week was the 6thstorage report and 5th withdrawal of the 2017-2018 Withdrawal Season. Withdrawal (182 Bcf) was on the upper end of analysts’ expectations (107 Bcf – 186 Bcf). Storage is now 183 Bcf below last year’s level and 84 Bcf below the 5 year average.
- Year over year deficit has decreased 9.0% since the previous week.
- Deficit under 5 year average has increased 211.1% from the previous week.
- February 2018 NYMEX currently trading at 2.744 after opening at 2.646.
- Next 7 days:
- 2-6 below normal for most of the Southeast, 6-12+ below normal for northeast/central US,2-6 above normal for the West Coast.
- Week following:
- 2-9 below normal for eastern and central US, 1-3 above 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.