The continued “winter heating season” remains to show little sign of heating demand, and the combination of natural gas production, power burn and the warm seasonal weather had the market on the edge of its seat waiting to see prices dip below $2.00/MMBtu as it did in December. On Thursday they did just that, March natural gas futures settled at $1.972/MMBtu. Weather Service International, in its six- to 10-day outlook called for above-average temperatures across the northeast and large areas of the west. Looking ahead to the 11- to 15-day range, WSI’s forecast called for unseasonably warm weather across the west and south-central US, while below-average temperatures were expected for the north-central US and the east.
With storage being so high above normal conditions, production still going strong and no significant heating demand in the forecast futures have promptly collapsed. Futures haven’t registered this low at this time of the year since February 1999 when they traded for $ 1.74/MMBtu, according to EIA data. If storage levels end at anything over 2 Tcf (trillion cubic feet) at the end of March this will signal more downside for prices.
Also in this week market summary Mexico’s whole sale market has completed its first week of trading and we continue to keep a close eye on how this newly deregulated market will unfold. The market at this time is yet only a deregulated wholesale market, and not open to retail electricity, but so was the United States at the beginning of deregulation.Read More
Storage stocks posted the largest drop of the heating season surpassing almost all analysts’ expectations. The pull from storage brought stocks down 211 Bcf to 3.086 Tcf. It was also the first time during this heating season the withdrawal surpassed both the drawdown reported on this week last year and five -year average. However, storage inventories are still 20.7% above last year and 16.3% above the 5 year average. The Northeastern and Western States are looking to have above average temperatures whereas the middle and southern states are expected to experience below average temperatures according to the 6-10 day forecast (NOAA). The March contract traded between $2.088 and $2.189/MMBtu during its first day in the prompt-month position.
With many analyst declaring winter effectively over, you may notice brief peaks of higher trading prices from the market attempting to take advantage of Februarys heating demand prediction. Higher than expected withdraws may not be able to offset milder temperatures moving forward.Read More
Rapid Power Management is dedicated to educating our clients to make smarter energy decisions. Therefore, we want to pass along this important update about a possible increase to your electricity bill.
ERCOT System Administration Fee Increase
ERCOT, the electric grid operator for much of Texas, has been allowed to increase a fee to the Retail Electric Providers (REPs) which may affect your electricity bill this year. On October 8, 2015 the Public Utility Commission agreed to raise the “System Administration Fee” by 19.3%. The fee increase went into effect on January 1, 2016 and is expected to generate nearly $34.4 million in additional revenue this year. The per-kWh cost of this fee increase is $0.00009. This fee was last increased in 2014.
How will this affect you?
Rapid Power Management is starting to see some REPs pass along the fee increase to the end user utilizing the “change in law” provision of their retail electricity contracts. Please note that electricity contracts almost always include a “change in law” provision allowing the REPs to pass along any additional costs incurred as a result of a change from a governing authority.
The table below details your annual cost increase based on an estimated annual kWh usage number:
Please feel free to reach out to your Energy Manager at any time with questions or concerns. As always, thank you for the opportunity to serve you and your business.
-Rapid Power ManagementRead More
As the winter heating season rolls on, natural gas and electricity prices continue to remain near 15-year lows. A major snow threat is expected for the East Coast over the weekend, but it is only expected to have a minimal impact on prices. The rest of the nation should see warmer than normal temperatures for the 6-10 and 8-14 day period, thus highlighting the fact that El Nino conditions are keeping prices depressed with above average temperatures. The 178 Bcf withdrawal from storage came in under expectations, but right in line with the five year average, making it a neutral market driver overall for this reporting week. Total inventories now stand 23.6% above last year, and 16.7% above the 5-year average.
2016 is expected to be a “change year” for the natural gas and energy market as prices fall to unsustainable levels. Current market conditions have made it harder to make drilling for oil and gas economic for most players and for the first time since 2007, total natural gas production is expected to decrease year-over-year. When prices respond to falling production versus increasing demand for natural gas is the big question. A handful of analysts believe a market low was reached in December and expect prices to continue to increase through the spring and summer 2016. Others believe that if above average temperatures reassert themselves in February then we will exit winter with record storage inventories and prices could test December lows.
Incoming cold weather for the winter sparked a 168 draw from storage, which is the largest pull from storage we have seen thus far in 2016. The market saw prices shoot down with this news as the withdrawal came in well below consensus expectations of 180 Bcf. This marks the 5th week in a row that the draw from storage has come in below the five year average and last year’s numbers for the same reporting week. The market continues to become more and more oversupplied with total inventories 20.3% above last year, and 15.8% above the five year average.
Strong production as well as a record El Nino can bear the blunt of the blame for this as unseasonably warm temperatures are keeping winter heating demand low. Over the next two weeks above average temperatures are expected to continue across the majority of the lower 48, including the entire northeast. These El Nino conditions have an 80% chance of lasting into the spring of this year, but the NOAA has said the El Nino has peaked and that we should experience it waning in strength over the next couple of months.
This week a bullish withdrawal from storage was reported, coming in almost 16 Bcf above the consensus expectations. A 113 Bcf withdrawal from storage was reported by the EIA, which brought total inventories 17.2% above last year, and 14.6% above the 5-year average. Also, bringing prices down with storage would be the volatile global economy, as turmoil in China has caused the DOW Jones and S&P 500 to drop 4.9% and 5.2% respectively, so far in 2016. While the record El Nino has kept price suppressed for the most part this winter, the NOAA has stated that the El Nino may have reached its peak and that it should start to taper off and bring about more seasonal weather.
More recently, the cold front that pushed through over New Year’s caused prices to jump almost 5.1% over the weekend. This jump highlighted the increased demand for natural gas in the United States as temperatures were not that far from normal. Tim Evans, energy futures specialist with Citi Futures said, “The overall message is that the baseline supply/demand balance has tightened at least somewhat, with either some moderation in supply or greater sensitivity to winter cold than had been anticipated.”Read More
Bearish news continues to come in for natural gas and electricity prices with latest draw from storage coming in under consensus expectations. The EIA reported a 34 Bcf withdrawal from storage this week coming in 7 Bcf under consensus expectations of 41 Bcf. Current storage levels widened the gap between the five year average to sit 322 Bcf, or 9.1% higher, and 541 Bcf, or 16.4% above last year. The market responded bearishly to this news and Tradition Energy senior analyst Gene McGillian commented, “We have so much gas in the ground, it’s driving prices down in search for a bottom. It does not appear that we have found it yet.” Low storage withdrawals through the winter could leave large amounts of gas in the ground, current predictions for end-of-march inventories are 1.862 Tcf, but some analysts believe we could see as much as 2.5 Tcf. Ending the winter with levels this high could spark fears of oversupply throughout all of 2016
El Nino conditions have brought mild winter weather across the majority of the United States, and as a result; average US demand has been just 76.6 Bcf/d, 6.4 Bcf (7.7%) lower compared with the same period a year ago. Total US demand for December is expected to see a slight uptick as winter heating increase, but still projected to average just 80.1 Bcf, or 3.5% lower than December 2014. This is one of the strongest El Niño’s on record and the trend above abnormally warm weather is expected to persist into spring 2016.Read More
This week a bullish withdrawal from storage draws a bearish market response. The NYMEX January natural gas futures settled 4.7 cents lower at $2.015/MMBtu Thursday as the market ignored the bullish storage data and looked forward at forecasts for continued above-average temperatures. The 76 Bcf pull from storage was much higher than the consensus expectations of 62 Bcf, and also much higher than last year’s draw of 47 Bcf, as well as the five-year average withdrawal of 65 Bcf. Current storage inventories still sit 15.3% above last year’s levels, and 6.5% above the five-year average. Forecasted end-of-March 2016 inventories are expected to be 1,862 Bcf, which would be 240 Bcf, or 14.8% above the five-year average.
Some price support for the Henry Hub natural gas spot prices as they are expected to increase along with the economy over the course of 2016. Natural gas spot prices are projected to average $2.67/MMBtu for full-year 2015 and rise slowly to average $2.88/MMBtu in 2016. However, current spot prices continue to drop with strong production, high storage, and mild winter outlooks.
Injection season has come to an end with the EIA reporting the first withdrawal from storage this week. The 53 Bcf draw from storage was higher than consensus expectations of 46-50 Bcf. Typically, a higher withdrawal than expected translates to bullish news to the market, but with storage inventories at all-time highs the market remained relatively unchanged. Total inventories are still 15.9% above last year’s levels and 6.7% above the five-year average. The weather outlook remains mild for the winter and the WSI 8-14 forecast is predicting temperatures for the Midwest and Northeast to be between 6-15 degrees above seasonal averages.
Some bullish factors in the market this week are reflected in natural gas consumption and power burn numbers. Natural Gas consumption set a record for November at 64 Bcf/d, this represents an increase of 3.4 Bcf/d or 5.7% over 2014. Cheap natural gas seems to be the driving force behind the record setting power burn numbers the market has seen in the last four consecutive months. The use of natural gas for the generation of electricity (power burn) averaged 24.1 Bcf/d in November, which is 21.1% higher than the previous record, and 30.2% higher than the 5-year average.
Storage Inventories finally reached the 4 Tcf mark for the first time ever this week, helped by a late 15 Bcf injection. This was also possible because the EIA’s last injection report being revised upwards by 5 Bcf. On Monday, the EIA officially reconfigured the methodology and regions used in its weekly gas storage report. “The new methodology caused the storage estimate to jump from the 49 Bcf originally reported on Friday to 54 Bcf.” (Platts) Another factor enabling storage to reach yet another all-time record was that this week’s injection marked only the second time since 2010 that a storage week ending this late in November resulted in a net injection. Analysts predict another net injection this week, which would set another record as the latest net injection ever recorded.
Weather, along with high storage inventories, continue to exhibit bearish forecasts for the winter. Bloomberg business and the NOAA reported this year’s El Niño is the strongest on recorded, surpassing the 1997-98 El Niño. Last month was the hottest October on record and analysis shows that temperatures had the biggest variance above normal compared to any month in the past 136 years, according to data from the NOAA. Typically, the heat caused during El Niño conditions gets trapped in the atmosphere and tends to linger through the winter and this is bearish for electric and natural gas demand.