Energy Market Update-January 2019
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:
December’s market price was the highest since the ‘Polar Vortex’ winter of 2014 at $4.715/Dth. Concerns for gas storage levels along with a very cold November were to blame. Since then, a more normal temperature range has been forecasted and the market dropped back.
The chart below shows the natural gas near month and future 12 month average strip prices. The future pricing from Mid-2019 and beyond have been stable and continue to be good buying opportunities.
January’s market price settled on December 27th at $3.642/Dth, dropping $1.073 from last month.
Current Market Movers:
Bearish: (lower prices)
- Analyst’s expectations for the end of winter storage levels have been increased and may be back in the 5 year average range in coming weeks.
- Forecasts for January show an equal chance of normal temperatures across the south and into the northeast. Above normal for a good portion the northwest
- El Niño weather pattern probability increased 10% from last month, now over 90% for Jan-Feb’19. This pattern causes a greater chance of above normal temperatures across the northern tier of the country, keeping cooler and wetter conditions to the south.
Bullish: (higher prices)
- We are seeing neutral conditions at this time, however extreme cold conditions, if they were to occur, can adversely affect well production and spike natural gas and electric prices.
- Nuclear power plant outages are about 66% above the 5 year average. To compensate for this, an increase in fossil fuel consumption is expected.
- Now that natural gas prices have pulled back, the gas-to-coal switching with the electric generators has declined, thus increasing gas demand.
Price Stabilizer: (controls price range)
- As of November 2018 there are 798 drilled, but uncompleted wells in gas producing regions. If there is a need to ramp up production, they can bring these online quickly.
Natural Gas Storage Update:
The storage report for week ending 12/28 shows an withdrawal of 20 Billion Cubic Feet (Bcf), well below the average -100 Bcf for this time of year. This puts levels at 17.2% below the 5-year average by 560 Bcf, and 450 Bcf below last year at this time. Current percentage of total capacity is now at 61.9%. Average withdrawals for the past month were mixed with the past two being well below average.
[Read the full short-term energy outlook at https://www.eia.gov/outlooks/steo/]
EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants to rise from 32% in 2017 to 35% in 2018 and in 2019. EIA forecasts that the electricity generation share from coal will average 28% in 2018 and 26% in 2019, down from 30% in 2017. The nuclear share of generation was 20% in 2017 and EIA forecasts that it will average about 19% in 2018 and in 2019. Wind, solar, and other non-hydropower renewables provided about 10% of electricity generation in 2017. EIA expects them to provide 10% in 2018 and 11% in 2019. The generation share of hydropower was 7% in 2017, and EIA forecasts that it will be about the same in 2018 and in 2019.
EIA expects average U.S. solar generation will rise from 212,000 megawatt hours per day (MWh/d) in 2017 to 268,000 MWh/d in 2018 (an increase of 27%) and to 303,000 MWh/d in 2019 (an increase of 13%). In recent years, the industry has seen a shift from fixed-tilt solar PV systems to tracking systems.. Although tracking systems are more expensive than fixed-tilt systems, revenue from the additional electricity generated by following the path of the sun across the sky often exceeds the increased cost.
Mid to long term electric and gas contracts continue to be good at this time. Gas storage levels are improving but will remain on the low side of average. This may keep the closer futures trading months priced higher. To avoid this potential, locking in gas or electric deals that renew later in 2019 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.