Energy Market Update-May 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:
Natural Gas storage levels continue to play an important role in determining market prices, and gas prices directly affect electric rates. Analysts constantly calculate the technical data, i.e.. production and exports along with storage injections, to determine what this level will be. To reach a what is considered a healthy level of 3.5 to 4 Tcf (Trillion Cubic Feet), we need to see storage build at about 12 Bcf per day. Mild to normal summer days will allow this to happen, however the population dense areas of the country are forecasted to have above average temperatures in the 3 month outlook (right).
May’s Market price settled on April 26th at $2.821/MMBtu, moving up 13¢ from last month.
Current Market Movers:
Bearish: (lower prices)
- May is showing cooler temperatures for the eastern half of the country in the 6-14 day forecast. This will reduce demand for cooling and the need for additional electric generation before the official start of summer.
Bullish: (higher prices)
- Natural gas storage levels are starting the injection season below the 5 year average. Investors are watching closely for how fast storage will replenish. Any short injections will be bullish going into summer.
- Because of low natural gas prices, the consumption of gas will be higher versus coal for electric generation. This is particularly important during summer. Eastern coal is currently about .4¢ more expensive than gas to generate a Kilowatt Hour of electric.
Natural Gas Storage Update:
The storage report for week ending 4/20 shows a withdrawal of 18 Billion Cubic Feet (Bcf). This puts levels at 29.1% below the 5-year average by 527 Bcf, and 897 Bcf below last year at this time. Current percentage of total capacity is now at 29.3%. It is extremely rare that we would see a withdrawal this late into Spring.
Energy News: Excerpt from the U.S. Energy Information Administration | Short-Term Energy Outlook April 2018
The average U.S. residential electricity price from June–August is expected to be 2.3% higher than last summer, primarily as a result of higher generation fuel costs. Retail electricity rates are also rising as utilities increase their investment in transmission infrastructure. Prices are expected to be higher this summer in all regions of the country, ranging from a forecast 1.6% increase in the West South Central Census division to a 3.8% increase in New England.
Higher electricity prices combined with increased consumption in some regions contribute to EIA’s expectation that typical retail electricity bills will be higher this summer than last summer. EIA forecasts the typical U.S. residential electricity bill will average $142 per month this summer, which is 3.4% more than last summer. The typical customer’s summer electricity bill varies throughout the country, depending on the need for air conditioning. In the Pacific states, electricity bills are forecast to average $113/month (4.5% lower than last summer), and in the West South Central area, forecast bills average $166/month (4.7% higher).
Expected warmer summer temperatures contribute to higher forecast levels of U.S. total generation, averaging 12.7 terawatt hours per day in June, July, and August, which is 2.1% above average U.S. generation last summer. Natural gas fuels the largest share of generation by the electric power sector, supplying a forecast 36% of total U.S. generation this summer, up from 34% last summer. In contrast, coal-fired power plants are forecast to supply 30% of total electricity generation, compared with 32% last summer. Nuclear power fuels a forecast 19% share of generation, the same as last summer. The share of generation from conventional hydropower is forecast to be 7% this summer, which is unchanged from last summer, while added wind capacity boosts its share of generation to 5% from 4% last summer.
EIA expects the cost of natural gas to electric generators to be relatively similar this summer compared with last year. The forecast share of natural gas-fired generation rises while coal declines, primarily as a result of the expected changes in the nation’s mix of electric generating capacity. The electric power sector is expanding its fleet of generating units powered by natural gas, with 13 gigawatts of new capacity scheduled to be online by the end of August 2018
U.S. Energy Information Administration | Short-Term Energy Outlook April 2018 5
compared with the same month last year. In contrast, the total amount of U.S. coal capacity in August this year will be about 11 gigawatts lower than last summer as a result of recent retirements of coal power plants, especially in Texas.
Short contracts continue to rank as good as we are not in the shoulder months of spring. Long term contracts rank good to excellent.
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.