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 projected to reach 6.2 Bcf/d (+50%) in 2020.
- LNG - Dominion Energy’s (0.7 Bcf/d) Cove Point terminal exported its first cargo last month.
- 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.
- 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 colder weather for the next 1-2 weeks.
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.
- 194 gas rigs (+4 vs last week) vs. 160 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 March 2018
- Dry production last week was at 79.2 Bcf/d (up 11.7%, or 8.3 Bcf per day, year-over-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 66.119 Bcf/d in April, up from 65.150 Bcf/d in March.
- Tomorrow’s storage report - Seeing estimates of ~27 Bcf withdrawal (last year: 4 Bcf, 5 year avg: 28 Bcf)
- Coldest part of the winter has effectively passed.
Gas Market Highlights:
- Last week was the 20th storage report and 19th withdrawal of the 2017-2018 Withdrawal Season. Withdrawal (63 Bcf) was below analysts’ expectations (65 Bcf – 80 Bcf). Storage is now 672 Bcf below last year’s level and 346 Bcf below the 5 year average.
- Year over year deficit has increased 0.7% since the previous week.
- Deficit under 5 year average has decreased 5.2% from the previous week.
- May 2018 NYMEX currently trading at 2.718 after opening at 2.696.
- Next 7 days:
- 1-6 below normal for most of the East, 3-12 below normal for the Midwest, and 1-6 above normal for the Southwestern US.
- Week following:
- 1-3 above normal for South Central US and 1-3 below normal for the rest of the country.
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.