Energy Market Update-July 2018
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:
Summer temperatures are the main influence of market pricing for natural gas. However, news of tariffs that could reduce the volume of exports of LNG to China could help storage builds… still early to tell. Higher oil prices do not have as much influence on gas prices as in the past, and the EIA reports do not expect near months trading to breach the $3 mark over the summer months. Further out, if storage does not replenish to comfortable levels, prices are expected to move up.
July’s Market price settled on June 27th at $2.996/MMBtu, moving up 12.1¢ from last month.
Current Market Movers:
Bearish: (lower prices)
- If there is anything considered bearish to market pricing, it would be a normal summer temperatures with low electric demand. The 3 month outlook shows only a small north central region as normal, the rest, above.
Bullish: (higher prices)
- Natural gas storage levels are remain below the 5 year average. Investors are watching closely for how fast storage will replenish. Any short injections will be bullish throughout the summer and especially during early fall.
Price Stabilizer: (controls price range)
- Natural gas prices can affect the consumption balance of gas versus coal for electric generation. This is particularly important during summer. Natural gas is currently about $0.0038 or .38¢ less expensive than Eastern Coal to generate a Kilowatt Hour of electric. If gas prices rise, we would see an increase use of coal in the total fuel mix under PJM, thus reducing the gas demand for electric generation.
Natural Gas Storage Update:
The storage report for week ending 6/29 shows an injection of 78 Billion Cubic Feet (Bcf). This puts levels at 16.8% below the 5-year average by 493 Bcf, and 717 Bcf below last year at this time. Current percentage of total capacity is now at 49.2%. Injections are in the average range for this time of year.
In recent years, as its domestic energy consumption has grown, China has become a more significant destination for U.S. energy exports. In particular, China has been among the largest importers of U.S. exports of crude oil, propane, and liquefied natural gas.Source: U.S. Energy Information Administration, Petroleum Supply Monthly
In 2017, more U.S. crude oil was sent to China than any other destination except Canada. China received more U.S. crude oil in 2017 than the third- and fourth-largest importers, the United Kingdom and Netherlands, combined. China has been the world’s largest net importer of total petroleum and other liquid fuels since 2013 and surpassed the United States as the world’s largest gross crude oil importer in 2017.Source: U.S. Energy Information Administration, Petroleum Supply Monthly
Source: U.S. Energy Information Administration, Natural Gas Monthly
As U.S. liquefaction export facilities have come online, the United States has exported greater volumes of liquefied natural gas (LNG), averaging 1.9 billion cubic feet per day in 2017. Of that amount, 15% went to China, making it the third-largest importer of U.S. LNG exports behind Mexico and South Korea. The next-largest importer, Japan, received about half as much U.S. LNG in 2017 as China. In 2017, China surpassed South Korea to become the second-largest importer of LNG in the world.
Short and long term electric contracts continue rank fair. Even though the future years continue to trade in backwardness, a premium is added to compensate for market fluctuations. Natural Gas long term contracts remain good.
The market opportunity is a ranking of how we perceive timing of contract purchases for natural gas or electric.
Information provided by the Energy Division of Edge Insights,