Energy Market Update
Edge Insights energy experts are constantly monitoring energy market conditions in order to help ensure the best possible pricing and contract terms for our clients. The following report is a snap shot of current conditions intended to help our clients stay informed of market dynamics.
Natural Gas Market Overview:
The above normal temperatures in February may reappear in April. This time of year, we start to see a market reaction to warmer summer forecasts, and an expected increase in gas used for electric generation for space cooling. Along with the influence of temperatures, there continues to be an increase of piped and shipped liquid natural gas. The amount of producing wells are steadily increasing as investors watch to see if this offsets the growing demand. The storage levels are currently robust due to the warm winter, but with higher demands, this could cause prices to move up heading into next winter.
Current Market Movers:
Bearish: (lower prices)
- Above average temperatures for the eastern half of the country through April expected. (Clipping on right from Tropical Tidbits)
- Increases in well drilling should affect production levels during 2017.
- Could coal use increase? This would reduce demand for gas at power plants.
Bullish: (higher prices)
- Warm summer forecasts a possibility.
- Nuclear power plants maintenance is higher than average.
- Demand increases for LNG and Mexico pipeline exports expected to continue.
- Low storage levels by next heating season.
Natural Gas Storage Update:
Natural Gas storage levels remain above the 5-year average by 13.9%, but are 17.1% below last year at this time. We recently saw what may be the last withdrawal for the heating season at -43 Bcf, which puts storage levels at 2,049 Bcf, or 47.2% of capacity. The EIA is forecasting an end of injection season to be roughly 3,600 Bcf, with the 5-year average being about 3,900 Bcf.
Coal has always been the primary fuel used for electric generation. However, regulations on fossil fuel CO2 emissions, along with the abundant low cost natural gas, has moved gas to the forefront. As EPA regulation ease under the new administration, we expect to see coal and gas competing and prices of both remaining subdued for the coming years.
The short-term market is elevated with an anticipation of a decline over the next few weeks. At the time of this article, we rate short-term (6 to 12 months) pricing at fair, while long term (18 month and over) is still good.
The market opportunity is a ranking of how we perceive timing of contract purchases or hedging natural gas or electric.
Information provided by the Energy Division of Edge Insights, Inc.