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 gas exports expected to double by 2019.
- Setting all-time highs - ~4.5 Bcf/d
- LNG exports also hit an all-time high last week.
- 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 short and medium-term cold weather.
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.
- 181 gas rigs (+2 vs last week) vs. 146 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
- Last week’s Lower 48 production was at an all-time high of ~78.4 Bcf.
- 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 64.941 Bcf/d in March, up from 64.109 Bcf/d in February.
- Tomorrow’s storage report - Seeing estimates of ~56 Bcf withdrawal (last year – 57 Bcf, 5 year avg - 129 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 16th storage report and 15th withdrawal of the 2017-2018 Withdrawal Season. Withdrawal (78 Bcf) was in line with analysts’ expectations (60 Bcf – 98 Bcf). Storage is now 680 Bcf below last year’s level and 372 Bcf below the 5 year average.
- Year over year deficit has increased 11.7% since the previous week.
- Deficit under 5 year average has decreased 9.7% from the previous week.
- April 2018 NYMEX currently trading at 2.750 after opening at 2.785.
- Next 7 days:
- 0-6 below normal for most of the East and Midwest, 1-2 above normal for the Westcoast.
- Week following:
- 0-3 below normal for the East and Westcoast, 0-3 above normal for the Midwest.
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.