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
The first injection into storage of the year came in at 15 Bcf. The injection was lower than consensus expectations of 18-22 Bcf, but Platts analysts point out that an injection of any amount at this point in the year is bearish news. The massive supply glut continues to grow and total inventories are now 68.9% above last year’s levels, and 51.4% above the five-year average. Coming off the hottest winter on record, weather continues its bearish trend and the National Weather Service’s six to ten day forecast shows above average temperatures from Texas up into the northeast.
Bullish factors are expected to grow into the summer with emerging evidence of a production slowdown. March production average 1.0 Bcf/d, or 1.3%, less than February at 72.3 Bcf/d. The production slowdown is projected to continue until natural gas prices stabilize and economic conditions improve enough to support increased production. Other bullish factors this summer include the projection of increased demand, as well as, coal-to-gas switching. These factors are expected to eat into the massive supply glut and end of October inventories are expected to be about 1.2% less than last year’s levels.
Lastly, for the ERCOT market, the PUC approved the buyout of ONCOR by the Hunt-led group on Thursday. We will continue to monitor what this means for ratepayers as more information rolls in.
The natural gas futures market continues to defy logic and posted its ninth consecutive day of gains last Thursday, settling at $1.94/MMBtu. This is puzzling because strong production, record storage numbers, and above average temperatures at this point in the year suggest that prices should do just the opposite. Analysts are calling these recent gains a “technical rally” saying that it is mostly traders covering short positions in the market. Since the futures contract hit $1.63/MMBtu on March 3, April futures have rose 19%. Current prices indicate rising demand in the market, but traders say that since the demand is just not there, that a step back from $1.90/MMBtu can be expected once the short-covering fades.
Falling prices seem to be inevitable with the current storage situation. After the 1 Bcf withdrawal last week, total inventories are a staggering 67.4% above last year’s levels, and 48.3% above the 5-year average. With injection season right around the corner the storage surplus is only expected to grow even more. More bearish news comes with storage as the National Weather Service predicts a warm April to follow “the hottest winter on record.” Above average temperatures are expected for most of the United States, and in the Northeast, there is an enhance chance for above normal temperatures from Maine down to Northern Virginia.
For the sixth straight reporting week, the storage withdrawal came in below the five-year average putting total inventories a staggering 58.1% above last year’s levels and 41.%% above the five year average levels. The 57 Bcf pull from storage actually came within analysts’ expectations of 55 to 59 Bcf, and even with the withdrawal numbers looking so bearish, the market saw prices go up this week. Several futures analysts believed that despite the consecutive bearish withdrawals, the gas market is already priced in and can’t fall much lower. Although some disagree, this appeared to be the case this week after priced rebounded from fresh 17-year lows on Friday March 4.
The winter heating season is drawing to a close and three regions even reported net injections last week. This week is predicted to be the last net withdrawal of the season – of just 4 Bcf – leaving total inventories at 2.474 Tcf going into injection season (4.4% higher than the previous record in 2012). These levels can be attributed mostly to what the NOAA has deemed as “the hottest ever in the contiguous United States.” Overall, only two out of 24 weeks going back to early October 2015 have seen colder than normal temperatures.Read More
Total storage inventories dropped by 48 Bcf, which was actually above analysts’ expectations, but far from the norm. In the corresponding week last year, total inventories decreased by 227 Bcf, and the five-year average for the same time period is a 137-Bcf withdrawal. Accordingly, the prompt-month contract dropped to $1.639/MMBtu – or, the lowest a prompt-month contract has settled since reaching $1.628/MMBtu on February 26, 1999. Price continues to tumble as the storage surplus continues to grow. Total inventories now sit 45.6% higher than year-ago levels, and 35.6% more than the five-year average. Early predictions project that only 75 Bcf will be pulled from storage inventories over the final two weeks of the heating season. This would put end-of-March inventories at 2.461 Tcf, a record level moving into the spring shoulder months.
Strong production, the unseasonably warm weather brought on by El Nino, and record storage inventories continue to drive prices down toward the bottom. Just three weeks ago the spot price was at $2.05/MMBtu before falling to $1.85 last week and now to a current low of about $1.60/MMBtu (a 22% price drop in three weeks).
The weak withdrawal from storage this week caused natural gas prices to dive even lower than they already are. This week’s 117 Bcf withdrawal came in almost 20% below analyst’s expectations and the market has responded since then by dropping the NYMEX prompt month contract to $1.711/MMBtu Thursday. The NYMEX front-month contract has not traded lower since it hit an intraday price of $1.680/MMBtu and settled at $1.699/MMBtu on March 19, 1999. With the winter season now in the rearview mirror, energy prices have dropped to new lows amid continued oversupply in the gas market. As of now the only price risks moving forward seem to be gas demand growth and possible production curtailments throughout 2016.
In other news, we saw and energy milestone this week on Wednesday night as the first LNG exported from a US state other than Alaska departed from the Texas/Louisiana border on the Asia Vision vessel. Neal Shear, interim CEO of Cheniere said in a statement Wednesday morning that, “this historic event opens a new chapter for the country in energy trade and is a significant milestone for Cheniere as we prepare Train 1 for commercial operations.”Read More
According to a recent University of Texas survey, a majority of Americans believe electricity and natural gas prices are high now and expect prices to rise over the next six months. The survey, which was released last month, detailed how 68% of respondents thought electricity rates were high while only 51% felt the same about natural gas prices.
As you know, natural gas prices influence electricity rates. This season’s El Nino weather event, the global economic outlook and a gluttony of supply of domestic energy stocks has kept the market at or near all-time lows. Despite the survey results, the natural gas 36-month strip price continued to drop below $2.50 per MMBtu. If the survey proves one thing it’s that it’s as important as ever to be an educated consumer – especially as it relates to your energy costs.