Here is the mid-November energy market update:
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.)
- ~15GW set to come online in 2018.
- Gas exports continue to increase:
- Mexican gas exports expected to double by 2019.
- LNG export capacity is rapidly growing.
- September and October deliveries for LNG exports averaged 2.0 Bcf/d higher than last year.
- Several new LNG facilities coming online in the next year.
- Forecast to potentially reach 12 Bcf/d by 2020.
- Market will turn bullish quickly depending on weather.
- Going into winter with the lowest stocks in three years.
- As we shift to the withdrawal season, attention shifts to cold weather forecasts and the associated heating demand (Heating Degree Days.
- Total demand per degree day is currently at a record level and increasing.
- Major weather models are in disagreement about the 11-15 day forecast (GFS is bullish, ECMWF is bearish).
Reasons to Wait:
- With natural gas production growth projected and significantly higher rig counts versus last year, the market could fall if incremental demand doesn’t keep up.
- 169 gas rigs (no change since last week) vs. 115 gas rigs last year.
- Overall production hitting record levels (over 76 Bcf/d.)
- Gas production out of the Big Seven (Anadarko, Appalachian, Permian basins and Bakken, Eagle Ford, Haynesville and Niobrara shales) continues to steadily increase.
- Forecasted to reach 61.71 Bcf/d in December, up from 60.93 Bcf/d in November.
- Big Seven production has increased every month since January.
- Gas consumption (excluding exports) this injection season has 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.
- La Niña conditions have arrived and likely to stick around: NOAA predicting a weak La Niña for the remainder of winter 2017-18.
Gas Market Highlights:
- Last week was the 31ststorage report and 31st injection of the 2017 Injection Season. Injection (15 Bcf) was within analysts’ expectations (-3 Bcf – 32 Bcf). Storage is now 219 Bcf below last year’s level and 71 Bcf below the 5 year average.
- Year over year deficit has increased 21.7% since the previous week.
- Deficit under 5 year average has increased 73.2% from the previous week.
- December 2017 NYMEX currently trading at 3.080 after opening at 3.078.
- Next 7 days:
- 1-3 below normal for most of the East and West Coast. 1-6 above normal in the central US.
- Week following:
- Average temperatures for the East Coast, 0.5-3 above normal for the rest 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.