Energy Market Update- May 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:
After bottoming at $2.56/Dth from a warm February, natural gas prices rebounded to over $3.20/Dth with future months higher through the winter of 2017/18. The main driver of price is storage and the anticipated level before the next heating season. With the injection season now underway, market participants will watch for levels to keep pace with the 5-year average. Above or below the average will determine the direction of prices over the coming months.
Natural Gas Storage Update:
The storage report for week ending 4/28 shows the addition of 67 Billion Cubic Feet (Bcf). This is 15.5% above the 5-year average by 303 Bcf, but 359 Bcf below last at this time.
Current Market Movers:
Bearish: (lower prices)
- New wells coming on-line expected to increase production levels during 2017.
- Updated temperature forecasts show a more normal temperature range for the next few weeks. Start to summer not as hot as was expected a couple of weeks ago.
Bullish: (higher prices)
- Late summer forecasts could be warmer, increasing electric generation using natural gas.
- Demand increases for LNG and Mexico pipeline exports expected to continue. This could offset production increases.
- Potential for storage levels to be below last year’s levels by next heating season.
As of 2016, the United States had 99 operating nuclear reactors at 61 plants across the country, with a capacity-weighted average age of 37 years. The oldest operating nuclear reactor in the United States was built in 1969. Watts Bar 2, which entered commercial service in 2016, was the first new reactor added since 1996. An additional four reactors are currently under construction. Operation of nuclear plants at high capacity factors enabled them to contribute nearly 20% of total U.S. electricity generation in 2016 while only making up 9% of U.S. generation capacity. (Visit EIA.GOV for additional information)
Recently we have seen a surge in energy telemarketing calls offering very low prices. The terms are generally short and during a time when the market is normally low. They are relying on you allowing the contract to lapse, thus exposing you to very high monthly rates. Beware of agreeing to these type of programs, as they could cost you more over time. In addition, there is a potential for multiple contracts / commitments for which you are financially liable.
The short-term market remains elevated while the long term is still good. Larger electric contracts may consider locking in only the non-energy components, and taking a partial energy hedge on market dips. Similar to buying gas by protecting the Basis component, will avoid large swings in price through extreme winter conditions.
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.