Executive Market Summary

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

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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

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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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March 9th, 2015

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On Thursday, the EIA reported a 228 Bcf storage withdrawal which was in line with expectations. On the other hand, it was a record storage withdrawal for the reference week – surpassing the previous record draw of 176 Bcf in 2003. Early forecasts for next week’s storage withdrawal are around 200 Bcf which would register more than both last years and the five year average withdrawal.

The weather in the eastern two thirds of the country the last three weeks has been much cooler than normal. According to the EIA, temperatures in the lower 48 states averaged 28.3 degrees for the storage report week, 10.9 degrees cooler than the 30-year temperature and 11.3 degrees cooler than the average temperature during the same week last year. The weather combined with structural change has been a large driver for an increase in power burn (the use of natural gas for power generation). Power burn is also increasing due to an increased amount of natural gas generation capacity coming online and relatively low natural gas prices.

Average Daily Power Burn

According to AccuWeather and CenterPoint, warmth from the west will begin heading eastward finally warming things up this week. This weather pattern will bring the highest weekly temperatures since last December for many parts of the Midwest and East. After this week, though, there is a chance for below normal temperatures to reappear in the East.

ITR Economics is predicting that the US economy will soften throughout 2015. The Purchasing Managers Index (PMI) 1/12 rate of change signals slower growth in the economy that will persist through the rest of the year.

Information compiled from: EIA, CenterPoint, AccuWeather, NOAA, Bentek and ITR Economics.

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March 2nd, 2015

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Last week’s storage report came in well below market expectations. The actual withdrawal of 219 Bcf on Thursday caused the market to drop when predictions for a 239 Bcf withdrawal were not met. Two weeks ago storage surpassed the five year average for the first time since November 2013. That was short lived as we are back under the five year average by 1.5% or 30 Bcf but still remain 576 Bcf or 42.3% higher than last year’s storage number.

While weather is expected to remain cooler than normal this week, we shouldn’t see temperatures quite like the two weeks prior. The cooler temperatures have reflected on both storage withdrawals and natural gas consumption or demand for heating. US natural gas consumption remains at high levels – averaging 111.6 Bcf/day for the week ending February 20. Additionally, heating degree days (a measure of how cold a location is over a period of time relative to a base temperature, usually 65 degrees Fahrenheit) from January 1 through February 20 are about 11% more than normal.

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February 23rd, 2015

Executive Market Summary

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The widespread cold seen last week is expected to continue this week and next. As seen in the weather chart below, the eastern three fourths of the US will be cooler than normal through late February and early March.

Weather

Because of the cold, natural gas demand in the northeast hit 43.1 Bcf last Monday, the highest level in Bentek’s 10-year history. According to the EIA, this demand exceeded the previous high set during the 2014 polar vortex by 1.2 Bcf in January 2014. These demand spikes also put constraints on pipelines and led to price spikes. See chart below for regional gas prices this winter.

Regional Gas Prices

Last week’s natural gas storage withdrawal of 111 Bcf was larger than expectations of 105-109 Bcf. Storage is currently 678 Bcf above last year’s level and for the first time since November 2013, storage exceeds the five year average by 85 Bcf. This is not expected to last as early estimates for this week’s withdrawal are 240 Bcf and the following weeks report is also expected to exceed 200 Bcf. These would exceed last years and the five year average withdrawal by more than 100 Bcf (EIA, CenterPoint, Platts Gas Daily).

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February 16th, 2015

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On February 6, the Henry Hub spot price settled at $2.55/MMbtu – the lowest level since June 2012. Prices have since risen but are still very low. Strong production, lower than average storage withdrawals, and above normal temperatures in the west have helped contributed to this year’s low prices.

Sporadic cooler-than-average weather in the northeast has been offset by the factors listed above. Below normal temperatures in the eastern half of the country is expected through February 22, but weather, at least for now, has had a neutral effect on pricing.

WEATHER

The storage withdrawal came in at 160 Bcf, 6 Bcf less than market expectations. Storage sits 542 Bcf more than last year’s levels at 2,268 Bcf and has ALMOST caught up to the five year average of 2,279 Bcf. An early projection for this week’s storage withdrawal is about 110 Bcf.

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February 9th, 2015

Executive Market Summary

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US natural gas storage fell 115 Bcf last report week (Thursday, February 5). Analysts were expecting up to a 118 Bcf pull, so this fell below those expectations. Storage now sits 468 Bcf or 23.9% higher than the same time last year and only 29 Bcf or 1.2% below the 5-year average.  Early expectations for this week’s withdrawal are coming in at about 170 Bcf due to the cold temperatures two weeks ago.

Above normal conditions are expected for the western two thirds of the United States and normal conditions are expected across the eastern third. The Northeast is slated to be the only region to expect below normal temperatures.

According to Aaron Calder, a senior market analyst at Gelber and Associates, the current market is being dictated by production. The current natural gas market is oversupplied by about 1 Bcf/day and production is outstripping demand (Platts Gas Daily). Temperatures will need to drop significantly below normal to spur demand and drive the market up.

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