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.
A new all-time record for total storage inventory was set on Friday, November 6, 2015 with total inventories reaching 3.978 Tcf. This is 10.3% higher than storage levels at this time last year, and 4.5% higher than the five year average. Record storage, strong production, and El Niño conditions bringing mild temperatures are providing a very bearish outlook heading into winter. While production levels are finally starting to taper off – dipping below 2014 levels for the first time last week – enough gas was put into storage and set a record, leaving the market more than amply supplied. Analysts agree that the only driver left to put downward pressure on natural gas and electricity prices would be a severe winter. The El Niño conditions are doing just the opposite and unseasonably warm winter forecasts (combined with strong production and record storage) have the December – March contract price down 40% compared to the five year average.
Also in this week’s executive market summary, pipeline construction updates in the Northeastern market put the added capacity in perspective. A total of ~4 Bcf/d of expansion projects will come online by the end of 2015, 2 Bcf/d in 2016, and 10 Bcf/d in 2017. An additional 10 Bcf/d is planned by 2018, bringing total capacity to 37 Bcf/d – That’s a 236% build from 2014.
Energy Buzz: PJM Capacity Cost Increase
This is to inform you of regulatory changes taking place in the PJM capacity market, which will affect electricity customers in Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia. It is expected that the capacity performance market reform will increase costs for all electricity suppliers and utilities.
Your electricity contract likely contains a “change of law” provision which allows these costs to be passed through to your electricity bills beginning in June 2016. While the magnitude of increased costs depends on a number of variables, our analysis shows that customers can expect anywhere from a 3.0% – 7.4% increase in electricity costs.
As a result of the 2013 Polar Vortex, in which the region was beset by electricity reliability concerns due to unexpected outages of power plants and shortages of natural gas; the Federal Energy Regulatory Commission (FERC) ordered reforms which will increase capacity and strengthen the reliability of the region’s power supply. These reforms allow for additional payments to electricity generators in return for growing their overall generation capacity. This should strengthen reliability during extreme weather events like the 2013 Polar Vortex, resulting in fewer price spikes.
The costs associated with the capacity market changes were published September 9, 2015 and cover the period of time from June 1, 2016 to May 31, 2019. Please review the chart below to budget for the impact of these additional costs. The chart lists the average per-kWh cost increase for customers across PJM.
Note: That this cost varies depending on load factor for your specific electricity account:
For the third consecutive week a bullish injection report was recorded. This week’s injection of 52 Bcf was under the consensus expectation of 55-59 Bcf. Total storage inventories are still predicted to reach 4 Tcf in the coming weeks and currently sit just 71 Bcf away from that mark. Current storage levels of 3.929 Tcf matched the all-time record set in 2012. While overall expectations for the winter remain bearish, the market experienced a few bullish factors this week keeping prices up. Production declined 1% and dropped below 2014 levels for the first time this year. Analysts are citing high storage inventories in the Northeast and pipeline operational flow orders (OFOs) as the main causes for declining production.
Looking long-term it looks like exports to Mexico could be a larger bullish driver than expected. Analysts predict exports to Mexico to reach 3.6 Bcf/d by 2016 – currently 3.25 Bcf/d – and then 5.0 Bcf/d by 2018. Overall, a nearly 170% build in US exports to Mexico is expected by 2020. The increased demand for natural gas is expected to drive prices upwards long-term.Read More
TEPA Celebrated 10 Years – Promoting Ethics in the Energy Brokering Market
TEPA (The Energy Professionals Association) held its 10th annual conference with over 400 attending. Rapid Power is a proud supporter of TEPA and has partnered with this organization since its inception.
As part of the conference, the past presidents participated in a panel to discuss the 10 year history, along with major decisions that have helped shape the organization and industry. A few recognized accomplishments:
- Lobbyist in Texas to promote no government intervention in the competitive nature of energy choice. This protects our clients from further government regulation.
- Preparing and administering standardized tests to TEPA membership has given a recognized respect to the knowledge level and ‘best practices’ for doing business.
- TEPA web-site has become a great resource for membership- http://www.tepatexas.org/
The annual conference is being recognized as a national educational venue for all market place participants.Read More
This week’s 63 Bcf injection was below consensus expectations of 66-70 Bcf. The market initially responded to this bullish storage report by pushing the NYMEX December natural gas futures up. They eventually settling back down due to forecasted mild weather predictions and strong production.
Storage levels break another record this week by being the second highest levels since 1994 at 3.877 TCF. We will continue to see the trend in the next coming weeks due to milder temperature even though injections season came to a close this week.Read More
This week’s 81 Bcf injection was below consensus expectations of 86-90 Bcf. Normally, this would be a bullish indicator, but the market reacted oppositely by dropping the natural gas prompt month price. This shows that the market is confident about our supply situation heading into what analysts predict to be a mild winter. Storage levels are at the second-highest total for this point in the year (3.814 Tcf) out of the 21 years covered by the EIA’s gas storage reports. With only a couple weeks of injection season remaining storage inventories are expected to finish just under 4 Tcf, which would be a record heading into winter. With ample storage and record production levels, the only thing that might put upward pressure on natural gas prices would be a severe winter.
This week’s surprisingly bearish injection of 100 Bcf came in considerably higher than the consensus expectations of 91 – 95 Bcf. The market responded immediately by dropping prices 6.5 cents after the EIA released the storage report at 9:30 AM on Thursday. Platts Gas Daily quoted, “Analysts agree that in the wake of such bearish injection levels the only thing left to provide upward pressure on gas price will be a severe winter.” This injection has put storage inventories on a record pace to start winter 2015-16 and FERC projects that energy markets are well-positioned to meet winter challenges with a well-supplied natural gas market, new pipelines adding capacity, robust fuel supplies, and moderate weather in the Midwest, Northeast, and Northwest.
While the market remains decidedly bearish overall, a few events drove prices higher at the beginning of this week. Natural gas consumption increased for all sectors by 1.1% compared to last week, and consumption of natural gas for power generation (power burn) rose by 7.5%. Another factor causing prices to increase was the continued short covering in the natural gas spot market where prices reached a high of $2.58/MMBtu; however, these gains were quickly erased after the EIA released its storage report and selling pressure dropped prices to $2.45/MMbtu, right around where gas finished on the day.
This week, total storage inventories exceeded last year’s end-of-injection season levels of 3.590 Tcf. With total storage inventory reaching 3.633 Tcf the market will have more than enough storage to draw from to support the future winter heating demand. This number will only continue to grow with the injection season lasting three more weeks and then some, as historically, net storage injections continue into November. The EIA is still projecting total inventories to reach 3.950 Tcf, which would set a new high for storage. Other short-term drivers in this week’s market summary remained the same, with a mild winter outlook and slowing economy keeping natural gas and electricity prices down.
Long Term Drivers
– US Exports to Mexico
– Pipeline Updates
– Capacity Auction Effects
An early winter outlook published by Natural Gas Supply Association (NGSA) has natural gas prices staying flat overall this winter. Key factors in this decision were mild weather, slowing economy, YOY winter demand reduction, record storage estimates, and increased production. Weather and record storage estimates are the biggest drivers putting downward pressure on prices, while the economy, winter demand, and production estimates are considered to be more neutral drivers keeping prices steady.
The National Oceanic and Atmospheric Administration (NOAA) predicts that the US will experience a winter that will be 7% warmer than last year and 3% warmer than the 30-year average. NGSA expects that this mild weather will put downward pressure on prices.
The next storage report week should surpass last year’s peak storage inventory levels of 3.611 Tcf. The EIA has forecasted this year’s storage inventories to reach 3.950 Tcf by late October or early November (up almost 10% from last year). With a large supply to draw from this winter the US should be more than ready to handle the estimated demand levels. Abundant natural gas storage is forecasted to put downward pressure on prices.
A bearish theme continues in other news as this week’s 98 Bcf storage injection was described by analysts as “mildly bearish,” even though it came in within consensus expectations of 98-101 Bcf. Storage levels now sit 14.7% above last year and 4.5% above the five year average.