Energy Market Update-September 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:
Although gas storage levels are well below normal, we have yet to see the market react and push prices higher. To a large degree, this is because of record high production. We are now approaching the shoulder season, normally a bearish time of year as electric generation demand is declining.
An El Niño weather pattern is developing and has a projected 70% probability for the winter months. This can indicate a higher chance of warmer temperatures across the northern U.S. and potentially lower demand for heat.
Disturbances from Tropical weather in the Gulf is having a much lower impact on production than in the past. Inland flooding however, can shut down wells.
September’s market price settled on Aug 29th at $2.895/MMBtu, moving up slightly 7.3¢ from last month.
The chart below shows the near and future years natural gas average 12 month pricing. The 12 month strip has remained below $3 since February, and the distant years though 2022, continue trading lower.
Current Market Movers:
Bearish: (lower prices)
- Entering the shoulder season with reduced demand for cooling.
- El Niño weather is in the forecasts which allows for warmer winter conditions across the northern tier of the country.
Bullish: (higher prices)
- Natural gas storage levels remain well below the 5 year average range.
- LNG Exports get the go ahead at Cheniere Energy’s Corpus Christi, TX facility, which is now liquefying compressed natural gas. Their first shipment of LNG is expected by end of this year. There are now two operating LNG export terminals operating in the U.S., with Corpus Christi becoming the third.
Price Stabilizer: (controls price range)
- Coal to Gas switching is when gas replaces coal to generate electric during times when gas prices are low. This increases demand for gas will create higher prices, and eventually the pendulum swings the other direction. This is most evident during times of extreme high summer temperatures, and adds to price volatility.
Natural Gas Storage Update:
The storage report for week ending 8/31 shows an injection of 63 Billion Cubic Feet (Bcf). This puts levels at 18.7% below the 5-year average by 590 Bcf, and 643 Bcf below last year at this time. Current percentage of total capacity is now at 58.7%. Injections over the past 4 weeks were below average, except for most recent two.
The US map below shows the new electric generation by fuel type that are expected to come online in the next year. Natural gas is the largest followed by wind and solar. On the opposite side of this is the planned retirements. Of them, 11 are coal, 2 major nuclear plants, and one large gas plant in California.
Short term electric and gas contracts continue to rank fair. Long term is a good buy and should be considered if renewing contracts.
If considering a new gas term, hedging out to 2021 or 2022 for the best price is suggested.
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, Inc.