Executive Market Summary

May 18th, 2015

Executive Market Summary

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Weather is a hot topic right now as we are seeing what the atmosphere is capable of; severe thunderstorms, hail, and damaging wind gusts throughout the west and southwest.  According to NOAA, El Nino conditions are in the Pacific Ocean.  An El Nino is an irregularly-occurring ocean-atmosphere oscillation that affects weather around the globe.  This weather phenomenon intensified from ‘weak’ in April to ‘weak-to-moderate’ in May.  What does that mean for the US?  The prediction is warmer temperatures this summer compared to last year’s mild summer. It also means a busy hurricane season which could cause energy disruptions in the Gulf of Mexico.

The EIA reported storage injection of 111 Bcf for the week ending May 7th. The injection was below expectations calling for an injection between 115 and 119 Bcf.  US inventories now stand at 1,897 Bcf, which is 752 Bcf higher than this time last year and 38 Bcf below the five-year average.

Gas failed to follow through on the strong rally that started last Friday.  Weakening industrial demand throughout the eastern US, particularly in the Midwest, are contributing to the overall demand decline.  Demand is down 1.3 Bcf/d, while industrial demand shrunk by 0.1 Bcf/d.  Demand is expected to continue to fall heading into the weekend, before warmer weather early next week boosts power demand throughout the Northeast and Southeast, raising overall demand.

According to Platt’s, the Federal Energy Regulatory Commission expects power generation capacity and fuel supply to be ample this summer. FERC believes the system reserve margins across all regions will be adequate. It is important to note that this is the first summer in which the Mercury Air and Toxics Standards went into effect and there is still a positive report on reserve margins.

Because of the low natural gas prices, natural gas power burn continues increasing. The EIA predicts that natural gas generation from April and May will nearly reach the level of coal generation – the first time the shares have been this close since April 2012.

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May 11th, 2015

Executive Market Summary

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According to the EIA, from the week ending on April 3 (the beginning of the injection season) through the week ending on May 1, storage injections have totaled 325 Bcf – 54% more than the 211 Bcf injected during the same five weeks in 2014.

Thursday’s 76 Bcf injection compared bearishly against last year’s 75 Bcf injection and the five-year average injection of 68 Bcf. It also came in about 2-3 Bcf higher than what analysts predicted. Aaron Calder, senior market analyst at Gelber and Associates, believes that the market is currently oversupplied by about 3 Bcf/day and there are no signs of demand keeping up with production.

Weather is expected to remain mild with below normal temperatures across Texas, the Southwest and West. Above normal temperatures are expected across large parts of the Northeast and Midwest. The temperatures are expected to bring triple digit injections over the next four weekly storage reports. Forecasts for next week’s storage report are at about 120 Bcf.

Consumption fell last week as a result of the weather. Industrial demand dropped by about 3.4% and commercial and residential consumption fell by more than 30%. On the other hand, natural gas power burn increased 0.6% – which equates to a 13.9% increase over last year’s levels.

The Bureau of Labor Statistics released the job report and unemployment rate. Both are looking healthy and point to the economy improving. The U.S. added 223,000 jobs in April and the unemployment rate fell to 5.4%, the lowest since May 2008.

Long Term

On Thursday, May 7, Dominion Cove Point received final authorization from the Department of Energy (DOE) to export liquefied natural gas (LNG) to countries without a free trade agreement with the US. The Cove Point LNG Terminal is located in Calvert County, Maryland and is able to export 0.77 Bcf a day of LNG for 20 years.

The Federal Energy Regulatory Commission (FERC) filed a notice for environmental review for the Oregon LNG export terminal, due February 12, 2016. After FERC approval, the LNG export company will have to wait for final DOE authorization. If approved, the facility has the capacity to liquefy up to 1.3 Bcf of natural gas a day.

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May 4th, 2015

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After the storage report was released on Thursday, natural gas prices rose and, according to Gexa, settled above $2.75 for the first time in more than a month. The 81 Bcf injection fell 4 to 7 Bcf short of expectations. While it was a bullish report, we still sit 76.5% above last year’s levels and only 75 Bcf lower than the five year average. A positive to note is that Thursday’s injection was larger than both last years and the five year average injection for the same week.

Forecasters are expecting a mild summer season. The mild temperatures could bring triple digit injections these next few weeks.

Power burn continues increasing as more gas fired generation retires. Bentek estimates that power burn demand this summer will average 29.7 Bcf/day which is 4.5 Bcf/day higher than in 2014.

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April 27th, 2015

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For the second week in a row, the storage injection came in higher than what analysts were expecting. The 90 Bcf storage injection brought the current storage level to 1,629 Bcf. This sits 82.6% higher (737 Bcf) than last year’s levels and only 5.8% or 101 Bcf lower than the five year average.

Forecasts for May show more mild weather for the month with mostly normal and some below normal temperatures. Mild weather continues to take off heating and cooling loads, resulting in the larger injections.

Demand for natural gas continues to grow as coal plants retire, other plants begin switching from coal to natural gas and overall power burn increases. The MATS rule officially went into effect on April 16 and the EIA anticipates 13 gigawatts of coal fired generation capacity to retire this year. Coal accounts for 81% of all planned retirements in 2015.

Summer 2015 projections for consumption of natural gas power generation is just slightly below the 2012 record high level of 27.9 Bcf/day. Please see the EIA chart below.

Natural Gas Power Generation

Talks of gas infrastructure projects in the Southeast are expected to grow growth in natural gas demand along the coast. Kinder Morgan expects that there will be $100 billion worth of industrial projects along Texas and Louisiana. We will keep you updated as more information comes available.

Strip Price:

strip

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April 20th, 2015

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The EIA reported a storage injection of 63 Bcf on Thursday (for the week ending April 10). This injection was about 4 Bcf larger than expectations and brought the deficit to the five year average down to 173 Bcf. Storage currently sits 692 or 81.7% above last year’s levels.

According to CenterPoint, the mild weather has taken off both heating and cooling loads across the country. This helped lead us to the bearish storage injection which came in well above both last year and the five year average. This week’s forecast is also rather mild for the most part but there is a chance some eastern states may need their heaters!

Year to date power burn for 2015 has averaged 22.2 Bcf/day – 3 Bcf/day higher than in 2014 and 2.4 Bcf/day higher in 2013. Platts notes that this is important because under a nuclear outage situation, power burn could be even higher as natural gas is the choice fuel to make up for lost generation. Bentek Energy expects power burn to average 27.8 Bcf/day this summer.

Weather Forecast (WSI)

LNG Export Terminals Update

Cheniere, Corpus Christi, TX – Approved by the Federal Energy Regulatory Commission (FERC), the plant is expecting to begin operations in late 2015 with commercial service in 2018

Cheniere’s Sabine Pass LNG, Sabine, LA – This four train facility received approval from FERC to export 2.2 Bcf/day and is scheduled to enter into service by late 2015 and bring full capacity online by 2016.

Cameron LNG, Hackberry, LA – This facility will be capable of exporting 1.7 Bcf/day and operation is expected to begin in 2018

Cove Point LNG, Cove Point, MD – This single train facility will have a capacity of 0.82 Bcf/day and begins operation in late 2017

Freeport LNG, Freeport, TX – With a 1.8 Bcf/day capacity is scheduled to begin commercial service in 2018

Expansions are also in the works for Sabine Pass and Cameron LNG’s capacities which would add an additional 2.7 Bcf/day (combined) capacity if approved.

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April 13th, 2015

Executive Market Summary

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Nymex futures (May – Settled at $2.528/MMbtu) hit a 33-month low after the storage report was released on Thursday morning. Expectations of a 9-13 Bcf injection were exceeded by a 15 Bcf injection – the second injection of the season. This compares bearishly against the storage withdrawal of 8 Bcf last year and the five year average withdrawal of 2 Bcf. Storage still remains above last year’s levels but below the five-year average.

As mentioned last week, we are currently in the shoulder months where temperatures become a little less important to price because it is relatively mild across the entire US. The NOAA is predicting normal to above normal temperatures for the next two weeks.

New data was released from Bentek and 8,900 MW of capacity is set to retire by the beginning of June. More than half of this load lies in the Northeast. Retirement of coal generators coupled with the coal-to-gas switching (due to price declines for natural gas) could be an issue for NE power demand this summer. NE power demand hit 5.1 Bcf/day – 0.9 Bcf/day higher than last year and 0.3 Bcf/day higher than the previous record set in March 2012.

Los Ramones natural gas pipeline is a large pipeline project to move gas farther into Mexico. Phase I of the project, which went into [limited] service in 2014, will have the capacity to deliver 2.1 Bcf/day of natural gas from the Eagle Ford Shale (TX) into Northeastern Mexico. The 70 mile pipeline is expected to be complete (Phase II) in mid-2016. Exports to Mexico are expected to increase as demand from Mexico’s electric power sector grows. Mexico’s Energy Ministry projects that US exports to Mexico could reach 3.8 Bcf/day by 2018 (Source: EIA).

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April 6th, 2015

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Thursday’s storage withdrawal was very likely the last of the season. It followed our first injection of the year and came in at 18 Bcf. This was higher than the 9-11 Bcf withdrawal expectation but because of the warm weather, prices shouldn’t respond negatively for long. As Aaron Calder, senior market analyst at Gelber and Associates stated, the draw should cap off the withdrawal season and make way for strong production (Platts).

Temperatures become a little less important as we head into shoulder months* and pricing tends to now correlate with the amount of gas used during the shoulder season/the amount of gas injected into storage.

The Mercury Air Toxins Standard or MATS went into effect on April 1. Bentek expects that about 6,400 MW of coal generation will be retiring this month alone. We will continue to keep an eye on that. Because of the relatively low gas prices and the mild weather coupled with EPA regulations forcing coal plants into retirement, natural gas demand is rising. From Platt’s gas daily on Thursday, March 2, they explain that demand is expected to increase anywhere from 6-9 Bcf/day over last year’s levels.

On the long term, further EPA regulations loom including the Clean Power Plan to reduce carbon dioxide emissions from power plants and the decision to reduce methane emissions. Another few factors to note: The Los Ramones pipeline will connect Mexico City with growing gas supplies from the Eagle Ford, Marcellus and Utica shales by mid-2016. Additionally, because natural gas can be a by-product of oil drilling, it can be expected that production may suffer due to the plummeting oil prices.

*Shoulder Months: Normally defined as spring and fall months when energy demand is lowest. In the natural gas industry, the summer season is considered to run from April through October. The winter season is considered to run from November through March. From CenterPoint Energy.

 

 

 

 

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March 30th, 2015

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The 12 Bcf storage injection on Thursday was the first injection of the season.  This injection compares quite bearishly against the 56 Bcf withdrawal from last year and the five year average withdrawal of 19 Bcf. Storage currently sits 63.6% or 575 Bcf higher than last year and 11.6% or 194 lower than the five year average.

Weather remains normal to above normal in most parts of the United States through April 5. The Northeast is expected to see some cooler than normal temperatures before shifting warmer.

The Mercury Air Toxics Standard (MATS) goes into effect next month. Demand for power is averaging 3.8 Bcf/day higher than in March 2014. This increase is attributed to coal to gas switching due to low gas prices and the MATS compliance deadline. Data from Bentek shows that 6,400 MW of coal generation will be retiring in April.

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March 23rd, 2015

Executive Market Summary

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Temperatures were warmer than normal last week in the lower 48 states; on average temperatures were .07 degrees warmer than the 30 year average. Cooler than normal temps have been forecast for the Midwest and Eastern regions for the next few weeks and Thursday night/Friday saw wintry precipitation in the Algonquin region. However, warmer weather continues to be the expectation as Spring begins.

Thursday’s 45 Bcf pull from natural gas storage which was 4 Bcf below market expectations ended a three week run of above-normal storage withdrawals. We currently sit almost 53% higher than last year’s levels but remain 13% less than the five year average.

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March 16th, 2015

Executive Market Summary

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Temperatures were warmer than normal last week and will continue that way through the end of this week. Thursday night/Friday temperatures are expected to fall back below normal in the Northeast for at least a few days. The warmer weather has caused pricing to fall and indicate that spring weather is finally approaching.

Thursday’s 198 Bcf pull from natural gas marked the third week of above-normal storage withdrawals. We currently sit almost 47% higher than last year’s levels but remain 13% less than the five year average.  Production continues increasing and consumption does as well. In the EIA’s Short Term Energy Outlook, published on March 10, 2015, predictions for natural gas consumption or demand increases to 75.7 Bcf/day in 2015 from 73.5 Bcf/day in 2014. The growth in demand is largely driven by demand in industrial and power sectors.

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