Energy Market Update - Early March

Published: March 7, 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.
    • 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.
    • Production
      • 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.
    • Demand
      • 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.

Weather Highlights:                                                                                                                                                                                                                                            

  • 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.

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