Energy Market Update-July 2017
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 natural gas near month market price hit a low point on 6/21 at $2.88/Dth. Weather forecasts looking out one month indicate average temperatures for the eastern half of the country, with above average for the west. For now, electric generation demand for natural gas will also be average. The EIA is expecting 3,800 Bcf to be in storage by heating season or about 87% of capacity. This is lower than earlier estimates, and could cause a run up of market prices later in the year.
Natural Gas Storage Update:
The storage report for week ending 6/23 shows the addition of 46 Billion Cubic Feet (Bcf). This is 6.9% above the 5-year average by 181 Bcf, but 319 Bcf below last year at this time. This injection puts storage levels at 64.4% of total capacity.
Current Market Movers:
Bearish: (lower prices)
- Production measured in Bcf/d (Billion Cubic Feet per Day) is above last year’s levels. Total gas well count is now at 184, up 89 year over year. This puts us back to the number of producing well we saw in 2015. The low well count in 2016 was from a warm winter, causing a glut and record storage levels.
- Lack of extended warm periods, low cost coal, and increased hydro generation has lessened the demand for electric generation from gas compared to last year at this time.
Bullish: (higher prices)
- Hurricane season is here, and any disturbance in the Gulf or southern states can disrupt production and limit the amount of gas added to storage.
- Even as we see increased gas production and lowered demand, exports continue to increase. The result; gas storage injections continue to be below average. At this pace, we will be near or possibly below the 5-year average before winter. This may be a major influence on market direction later this year.
Electric News: (posted on the EIA.gov website on July 5th)
Based on EIA survey data for new, utility-scale electric generators (those with a capacity greater than one megawatt), capacity-weighted average construction costs for many generator types have fallen in recent years. Annual changes in construction costs include the effects of differences in the geographic distribution of installed capacity between years, differences in technology types, and other changes in capital and financing costs.
EIA began collecting data on construction costs for new utility-scale generators installed in 2013. The data for each year reflect projects completed in that year. Because power plants are often constructed over several years, reported costs are not necessarily indicative of the cost of a project initiated in that year. Government grants, tax benefits, and other incentives are excluded from these costs. Construction costs alone do not determine the economic attractiveness of a generation technology. Other factors such as fuel costs (for generators that consume fuel), utilization rates, financial incentives, and state policies also affect project economics and, in turn, the kinds of power plants that are built.
In 2015, wind, natural gas, and solar were the most commonly added capacity types, adding 8.1 gigawatts (GW), 6.5 GW, and 3.2 GW, respectively. In the case of wind and solar, almost all of these additions (98% and 91%, respectively) were at new plants, as opposed to new generators at existing plants.
For natural gas, about 60% of the capacity added in 2015 was new generators at new plants, and the remaining 40% were new generators at existing plants. For other fuels such as hydro and petroleum liquids, which had relatively little capacity added in 2015, almost all of those additions were located at existing plants. Construction costs for battery storage units are available for the first time in 2015.
As supply / demand balances with a more normal temperature pattern, natural gas prices remain low. This directly affects the cost of electric, so we continue to show a good buy for both short and long-term purchases.
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.