Executive Market Summary

January 26th, 2015

Executive Market Summary

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Although last week’s storage report was the second largest this year, it came in below market expectations of 222-226 Bcf. At 216 Bcf, the withdrawal was larger than last year’s 133 Bcf withdrawal and the five year average withdrawal of 176 Bcf. Early estimations for this week’s storage withdrawal are at about 100 Bcf due to the relatively mild weather last week.

Forecasts show that a cold weather pattern will develop this week across the central and eastern US which will eventually migrate westward. According to WSI, if February and March trend cooler than usual, the natural gas market, coupled with lowering coal capacity, could be much tighter this spring than previously expected.

Two pipeline expansions were completed in 2014 adding approximately 1 Bcf/day of natural gas supply to the Northeast. As more coal plants retire, natural gas is the fuel most often used to replace those generators. Natural gas fired generation contributed to more than 50% of new electricity generation in 2014.

The Environmental Protection Agency is proposing, for the first time, to regulate oil and gas methane emissions. The EPA plans to propose to cut methane emissions from the oil and gas sector by 40-45% over the next 10 years from 2012 levels. The rules will be proposed this summer and finalized by 2016. While the rule will apply to only new or modified sites, the EPA plans to rely on voluntary measures to cut methane on existing oil and gas operations.

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January 19th, 2015

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Revised weather reports show a higher probability for below normal temperatures in the south central US and parts of the Northeast.

weather

This report week’s storage withdrawal was larger than expected, larger than the five year average withdrawal and the largest withdrawal we have seen this winter. It was a result of the first cold snap of 2015, from January 7 through 10. During these 4 days average US consumption rose 23% compared to the average consumption for the week preceding the cold spell and averaged 31 degrees – 2.3 degrees cooler than the 30-year normal temperature but 5.1 degrees warmer than the same week last year.

The withdrawal brings total natural gas inventories to 2,853 Bcf – 282 Bcf greater than last year and 113 Bcf less than the five year average.

Across the US, utilities are replacing older power plants with new and cleaner natural gas fired units. This is increasing the demand on natural gas but will keep the grid running as more and more plants come offline when MATS goes into effect in 2016.

See below for five of the largest US energy projects completed in 2015. More than half of the 15,400 megawatts of new capacity that came online in 2014 iss powered by natural gas (www.anga.us)

Nat Gas Plants

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January 12th, 2015

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Last week was an interesting one. Our LNG exports hit the highest send out since April 2011 and NYMEX settled at the lowest level since September 24, 2012. The NYMEX February natural gas futures contract settled at $2.871/MMbtu on Wednesday, January 7.

Entergy Corporation’s 604-megawatt Yankee nuclear power plant in Vermont retired after 42 years of service. The generating station provided about 4% of the region’s electricity sales and its retirement will increase (even more) New England’s dependence on natural gas for power generation. See chart below for New England’s electric generation by type:

NE Chart

Several other nuclear and nonnuclear plants across the US have announced their retirement due to high maintenance costs and low profits – not to mention costs of compliance with environmental regulations. We can expect to see more of that when the Mercury Air Toxics Standard or MATS goes into effect in 2016.

In regards to weather last week, the Western half of the country experienced warm weather while colder winter conditions persisted throughout the Eastern half of the country. According to WSI and NOAA, above normal temperatures are expected throughout the entire country for the next 11-15 days putting downward pressure on natural gas prices even more. Neither forecast calls for below-average temperatures anywhere in the continental US.

Weatha

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January 2nd, 2015

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The market has been falling as lower than expected storage withdrawals occur, relatively mild weather persists and production continues to increase.

Analysts estimated anywhere from a 35 to 41 Bcf withdrawal for last report week’s storage report and the withdrawal came in at 26 Bcf. Not only below expectations, it was also well below last year’s 108 Bcf withdrawal and the five year average withdrawal rate of 114 Bcf. Storage now sits 7.8% (232 Bcf) above last year’s levels and only 2.5% (81 bcf) below the five year average.

Weather has been relatively mild but the cool weather pattern that was situated over the Western US last week is expected to shift eastward near the beginning of this week.

STRIP

Happy New Year!

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December 22nd, 2014

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Weather forecasts through the end of December show normal to above normal temperatures along the west and east coast with below normal temperatures in the Midwest. According to Direct Energy, early January forecasts show normal to below normal temperatures across the middle and eastern US. The west coast can expect normal/above normal temperatures.

Weather

Natural gas production continues increasing compared to 2013 levels. Production has averaged 70.8 Bcf/day since November 1 – an increase of 4.8 Bcf/day over the same period last year. Consumption is also lower – averaging 78.1 Bcf/day since November 1 compared to the 83 Bcf/day we saw last year. The moderate 2014 temperatures are contributing to both production increases and consumption decreases.

When the storage report was released the price for the January futures rose due to a larger than expected withdrawal. Coming in at 64 Bcf it was still smaller than last year’s 256 Bcf withdrawal and the five year average withdrawal of 157 Bcf.

According to Platts, the US power generation fleet is expected to grow. These new plants will replace retiring coal plants but about 63% of the new capacity will be renewables – which is expensive power.

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December 15th, 2014

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Although the storage withdrawal this week was larger than expected, it was still well below historical averages. The 51 Bcf withdrawal was 21 Bcf lower than the five year average withdrawal of 72 Bcf and 41 Bcf lower than last year’s withdrawal of 92 Bcf.

According to Centerpoint, expectations for next week’s withdrawal are currently around 60 Bcf which is smaller than the 256 Bcf (record) withdrawal last year and the 157 Bcf five year average.

The National Weather Service forecast shows greater than a 50% chance of above normal temperatures throughout the US and NOAA’s 8-14 day temperature forecast shows above normal temperatures across the entire nation.

Overall, prices have remained generally flat at most locations.

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December 7th, 2014

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The November cold snap led to larger than average withdrawals from storage inventories. Natural gas storage fell a total of 161 Bcf the first four weeks of November – the largest withdrawal for that period in more than 10 years. This was largely driven by the 162 Bcf withdrawal for the week ending November 21.

Change in Working Gas Inventories

Regardless of the November withdrawals, mild weather continues to outweigh most of the bullish factors. WSI, Platts and NOAA are all forecasting above average temperatures through mid-December across the entire country.

The warmer weather helped bring in a smaller than expected net withdrawal. The net withdrawal for the week ending November 28 was 22 Bcf – 28 Bcf lower than the five year average and 119 Bcf lower than last year’s withdrawal.

Production continues setting records. According to the EIA, production was more than 71 Bcf/day for all days in the report week and 2% higher compared to the previous week.

 

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November 24th, 2014

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The southern US saw warmer temperatures that lasted through much of the weekend but the northeast is expected to experience colder than average weather through this week. Predictions vary on the length of time the cooler weather will linger and gas futures have jumped to a nearly five month high on concerns that another brutal winter could strain our natural gas supplies. According to Teri Viswanath, a gas strategist at BNP Paribas, this is the most volatile start of the season we have experienced (WSJ).

The first withdrawal of the season occurred on Thursday. The number came in at -17 Bcf, about 5 Bcf more than expectations of a -12 Bcf withdrawal.  Forecasts predict anywhere from a 147 Bcf to 160 Bcf draw for this report week. It could be a record storage withdrawal for the third week of November. Please see below for the largest November withdrawals:

largest Nov Withdrawals

Consumption outpaced supply again this past report week and consumption in the northeast reached its third highest recorded November level on Wednesday. According to the EIA, mid-November demand for natural gas in the Northeast normally ranges from 15 to 17 Bcf/day. Since November 13, when the cold spell began, demand has remained above 18 Bcf/day.

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November 17th, 2014

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The cold temperatures we saw last week are expected to continue which will likely result in more natural gas consumption. The cold weather over the eastern three-fourths of the country is expected to linger through the majority of this week but normal temperatures are expected to take hold from the plains down to Texas around the middle of the week.

According to Bentek Energy, residential and commercial consumption hit 36.3 Bcf last Wednesday and then 42.1 Bcf on Thursday. For the first time since mid-April consumption outpaced supply. See chart below:

Resi Comm Consumption

In the latest revision of the EIA’s Short Term Energy Outlook, natural gas production numbers for 2014 are set to outpace what was produced in 2013 and then again in 2015.

The natural gas injection came in at 40 Bcf, above expectations of 38 Bcf, the five-year average of 16 Bcf and last year’s 22 Bcf injection. Forecasts estimate this will be the last injection of the year/season. If this rings true, we will begin depleting the 3,611 Bcf we have in storage. Storage still sits below the one and five year average by more than 200 Bcf.

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November 10th, 2014

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Short Term
Winter weather finally creeps in. This weekend the northeast experienced Winter Storm Warnings and Winter Weather Advisories.  New York and New England even received some snow. According to the EIA and CenterPoint, last week residential and commercial natural gas consumption rose to 30.5 Bcf and electricity consumption rose 0.5% to 69,114 GWh. The market responded to the introduction of cooler weather last week. Shell reports that natural gas futures spiked nearly 20%, an early November figure we have not seen since 2002.
The net injection last Thursday came in at 91 Bcf with expectations of 87 Bcf. This injection was 49 Bcf larger than the five year injection average and 56 Bcf larger than this week last year. 
Injection season wrapped up at the end of October. Thursday’s injection brought the total to a record 2,749 Bcf added for 2014 (April 1 – October 31). Inventories began at 826 Bcf, the lowest total inventory since April 2003, but concluded with 28 straight weeks of injections exceeding the 5-year-average according to the EIA. Despite last winter’s strain on natural gas inventories, record high production, a mild summer and early fall temperatures attributed to reduced volume of gas used for electricity generation.
These injections may not stop, either. For the past eleven years, injections have continued into November. In two of those eleven years, storage levels were greater at the end of November than at the end of October. If injections continue, we could see a similar trend this month.
Long Term
The EIA released an analysis over the effect of increased levels of early LNG exports on the US energy market. In it, the EIA predicts that expenditures for natural gas and electricity will increase modestly. On average, natural gas bills are estimated to increase between 1%  to 8% (depending on the export scenario and case) and electricity bills could increase up to 3% (again, depending on the scenario and case). To read the entire EIA analysis, please click here.
Multiple pipeline expansion projects are underway to increase takeaway from the Marcellus Shale. One pipeline began operation and another is expected to come online this month. Columbia’s West Side Project began partial service and will transport 0.4 Bcf/d from western PA and WV to the Gulf. The TEAM 2014 project is expected to be fully operational this month linking gas from western Pennsylvania and West Virginia with the northeast, midwest, and south.
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