Energy Market Update-June 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:
In the past few weeks, natural gas prices made to attempts to move to new highs, but remained range bound at $3.20 to $3.35/Dth since late April. Recent cooler temperatures across the Northeast, helped reduce demand for electric power generation in the large population areas, and was responsible for the decline from late May on the chart below. If we continue to see the absence of extreme heat covering a majority of the U.S. over the coming weeks, prices will remain stable.
Natural Gas Storage Update:
The storage report for week ending 5/26 shows the addition of 81 Billion Cubic Feet (Bcf). This is 9.8% above the 5-year average by 225 Bcf, but 370 Bcf below last year at this time. This injection puts storage levels at 57.7% of total capacity. The Energy Information Administration (EIA.gov) projects storage capacity to be about 90% before winter. This is below last year, and would influence rising prices.
Current Market Movers:
Bearish: (lower prices)
- New wells coming on-line are increasing production levels.
- Cooler start to summer will reduce demand for electric power generation and allow more gas to flow into storage over the coming weeks.
Bullish: (higher prices)
- A recent trade deal for LNG to go to China. This will have long-term effects and require new infrastructure at distribution points in the Gulf.
- Demand increases for pipeline gas exports to Mexico will increase 50% to 11 Bcf/d by summer. Most recently, the Trans-Pecos cross-border pipeline opened, adding 1.4 Bcf/d.
- Possibility of storage levels to be below last year’s levels by next heating season.
- On May 30, 2017 Exelon Corporation announced that it intends to close the Three Mile Island nuclear plant in 2019. Most likely due to high maintenance costs, Three Mile Island has not been profitable for Exelon in the most recent half-decade. The state of PA could halt the closure by providing taxpayer-funded subsidies to Exelon. This will need to be decided upon by the Pennsylvania legislative bodies. An increase in fracking in Pennsylvania, and elsewhere, has increased gas production, providing utilities with a cheap and readily available alternative to both nuclear and coal power, which is making it difficult for older power plants to compete.
- The recent trend in commodities markets, since mid-May, is down. Cooler than expected weather likely has a lot to do with pricing trends, as recent forecasts for summer 2017 are cooler than previously expected.
Because of the early summer cool down, and subsequent drop in natural gas prices, now is a good time to buy short and long-term contracts for both gas and Electric.
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.