“The Scoop” – Market continues to provide great buying opportunities but mounting pressure is slowly pushing the pricing higher. The main drivers pushing prices higher: are the pull back in drilling production, lower than expected storage injections and above average summer weather forecast.
While the warmest winter on record combined with record storage inventories and production levels kept prices low this winter; the EIA Short-Term Energy Outlook projects a “gradual rise through the summer, as demand from the electric power sector increases.” It appears that this rise in prices is already in effect with demand increasing and production dropping to a YTD low last week. Overall prices this summer are expected to be lower than last year’s, but higher still than the 17-year lows hit during/after the winter.
Looking long-term, the IRS issued new production tax credit (PTC) guidelines that are expected to accelerate the trend toward increased installation of wind power generation. The new guidelines have been revised to state developers of wind generation have four years to complete a new project and qualify for the PTC. Early estimates expect wind generation capacity to increase over 20% and reach 100 GW by 2019.
Production numbers continue to steadily decline as drilling activity is starting to affect daily production levels. Production is averaging 1.8 Bcf/d less than the record levels set in February. Since the production record was set, totals have fallen from 73.2 Bcf/d in February, to 72.2 Bcf/d in March, and then 71.4 Bcf/d in April. In 2016, year-to-date production has averaged 72.2 bcf/d and demand has grown to average 81.6 Bcf/d. This decline in drilling activity and production, coupled with growing demand has seen prices jump over 10% since lows set in February and early march. The natural gas futures settle at $2.08 last Thursday and analysts believe that prices will hover around the $2.00 range during the remaining shoulder months, or at least until increase summer demand appears and production declines accelerate.
Keeping prices low are the lingering weather effects from El Nino, as well as, total storage inventories. The 68 Bcf injection this week was yet again above consensus expectations of 64 Bcf. Total inventories now sit 48.8% above last year’s levels, and 46.7% above the five-year average. Above normal temperatures are likely in May across most of the contiguous US.
Rapid Power Management promotes Jared Patterson to Director of Energy Services
Dallas, Texas – Wednesday, May 04, 2016 – Rapid Power Management (RPM) has promoted influential energy-management leader and Certified Electricity Professional Jared Patterson to Director of Energy Services, the company announced today. Patterson joined RPM in July 2008 as an Energy Manager.
“Patterson exemplifies the type of results that our clients have come to expect from Rapid Power Management”, said JD Dodson, President and Founder. “His long-term vision and dedication to education and service has made him a trusted advisor to our clients and a key member of the RPM leadership team.”
Patterson is a graduate of Texas A&M University and has more than a decade of energy industry experience. After joining RPM, Jared quickly rose to Senior Energy Manager after having successfully navigated the relatively new and highly competitive retail energy industry for his clients. A leader at RPM, in the energy solutions industry and in his community, Jared has served as the President of the North Texas Association of Energy Engineers and as a two-term City Councilman for Sachse, Texas.
As Director of Energy Services, Patterson will oversee RPM’s Energy Procurement and Pricing Analysis Department, Client Services and After-Care Department and spearhead building stronger connectivity with vendors and business development partners while maintaining strong relationships with his existing client base.
About Rapid Power Management
Rapid Power Management (RPM), a Texas-based company, consists of energy experts in natural gas and electricity procurement, power factor correction and maintenance, sales tax exemption studies and lighting retrofits. As a trusted energy advisor and solutions provider, RPM educates its nation-wide base of industrial, commercial, governmental and institutional clients to make smarter energy decisions. Since 2002, RPM’s team of dedicated and passionate professionals has served as the energy management department for its clients by applying a market-based and technically- proficient approach to maximize their energy savings and achieve their sustainability goals.
The past few weeks we have seen an uptick in natural gas prices in response to rising demand and production slowdowns. Prices rose for 7 consecutive days until this week’s storage report was announced. The largest injection of the year, and since October 10, came in at 73 Bcf which was above consensus expectations of 70 Bcf. Total inventories are 51.6% above last year’s levels and 48.2% above the 5-year average. In regards to storage, the net injection for April gave prices some support as it is projected to be 59.4% lower than last year’s numbers. Storage rose a total of 325 Bcf last year compared to an estimated 132 Bcf in April 2016.
Weather continues to remain an extremely bearish driver with last week’s temperatures 38% and 47% warmer than the comparable week last year and the five-year average, respectively. Total demand across the US was cut by 70 Bcf last week in response to the warm weather. Looking back to last September, it has been 18% and 16% warmer than last year and the five-year average, respectively.
Big news this week came from Kinder Morgan’s decision to suspend the Northeast Energy Direct project (Tennessee Gas Pipeline). Kinder Morgan announced Wednesday that the reason for cancelling the projected was because it was unable to fully contract the necessary capacity. They also cited that the low gas price environment stemming from production innovations made it hard for producers to make new long-term commitments. This decision, as well as, the lack of regulatory procedures to facilitate binding commitments from electric distribution companies (EDCs), may open the doors for more project cancellations.
In other news, the EIA reported a 7 Bcf injection this week, which was slightly larger than consensus expectations of just a 2 Bcf injection. This low volume injection is bullish for this time of year coming in 75 Bcf under last year’s injection and 38 Bcf under the 5-year average. Total inventories still remain a bearish driver overall with current storage levels 55% above last year’s levels and 48.5% above the 5-year average. Weather is also expected to remain a bearish driver this week as the latest 8-14-day forecast shows higher likelihood of above normal temperatures for the eastern third of the United States.Read More
WSI’s latest 8-14-day forecast lays out a bearish message as temperatures are predicted to be above average for the entire lower 48 states. Storage also continues to remain a bearish driver in the market after this week’s report brought total inventories to 62.9% above last year’s levels and 52.1% above the fiver-year average. The supply glut actually shrunk this report week with the 3-Bcf withdrawal coming in below consensus expectations of a 1-Bcf draw to a 3-Bcf injection, and well below the injection reported last year, as well as, the 5-year average injection. In order for prices to climb higher, cutting into the supply glut is only part of the battle for natural gas. However, natural gas prices are seeing some help from a cut back in production and the projected increase in natural gas demand.
There is emerging evidence of a production slowdown with plunging rig counts combined with operators choking back on wells. Since the start of the year, production has fallen 1.6 Bcf/d and steady month-to-month declines. Production averaged 73.3 Bcf/d in February (a record high), but then fell to 72.2 Bcf/d in March, and is projected to fall again in April and average only 71.7 Bcf/d. On the demand side, increased coal-to-gas switching is expected to eat into the massive supply glut and ending inventories are projected to end October about 1.2% lower than last year.
There was a 12-Bcf injection into storage this week which was in-line with consensus expectations of 10-14 Bcf. This injection put total inventories at a record high at this point in the year with stocks 68.5% above last year’s levels and 54.4% above the 5-year average. Early predictions for the next two storage reports indicate that there will be a 12-Bcf pull, followed by a 10-bcf drawdown. This potential late start to the full-on injection season should help eat into historically high stocks. Recent storage announcements confirm that market fundamentals have shifted into undersupplied conditions, mostly due to slowing production and increased gas-fired power generation. Analysts predict this will help whittle away at storage stocks, but may take as long as a year to cut into record inventories and bring stocks back to normal levels.Read More
A cold snap in the eastern United States increased heating demand and brought about a 25 Bcf withdrawal from storage this week. This marks only the 2nd time all year that the pull from storage was above both the 5-year average and last year’s numbers. Although this news is bullish for the market, prices did not respond as such because total inventories still remain 68.3% above last year’s levels and 51.9% above the 5-year average. Increased demand and continued coal-to-gas switching is expected to eat into the massive supply glut this summer. The graphic below highlights this trend showing the the increased use of natural gas used as a fuel for electricity generation and the declining use of coal. In 2015, natural gas accounted for 36% of total generation which is a 6% year-over-year increase and the largest increase in the last 10 years.Read More