RD Energy  Newsletter: February 2018

February 2018 Energy Market Update

KEY DRIVERS

  1. Natural gas NYMEX closed for February at the 2nd highest price since December 2014.
  2. The natural gas storage withdrawal for the week ending January 19th tied the 2nd highest storage reduction on record at 288 Bcf.  Storage levels are 18.4% lower than this time last year and 17.5% lower than the 5 year average.
  3. Month to date US natural gas demand has averaged 104.9 bcf/day versus 90.9 bcf/day in January 2017.
  4. The blocking pattern that existed throughout the extended cold spell from late December to mid-January for the Midwest and Northeast is expected to return to take most of February back to below normal most of the month.
  5. Supply and Demand Drivers that are likely to drive natural gas and electric volatility in 2018
    1. At the conclusion of the storage withdrawal season in early April 2018 will storage levels trail the 5 year average storage levels?  Or will more natural gas be needed in the spring and summer of 2018 to refill storage prior to the next heating season?  At this point it is highly expected to be well below the 5 year average storage levels.
    2. How much growth will the U.S. see in LNG exports around the world as well as natural gas exports to Mexico?
    3. How much growth will there be in gas fired generation as more coal plants are retired this year and as summer heat begins gobbling natural gas as it is used as the primary fuel for electric generation?
    4. How much growth in renewable electric sources like wind and solar will affect future power prices if not this year, but over the next 5 years?
  6. Will natural gas supply continue to set record highs to keep pace with growing and record demand growth?  There’s no question that the U.S. has the natural gas reserves.  The bigger question is, can supply be produced fast enough this year to meet the ever growing demand or will it take a few more years?

 

There’s not much to add since the driver points seem to say it all.  The facts are clear: this winter natural gas demand has been much greater than the last two.  Storage at the end of the season will most certainly trail the 5-year average.  These facts support prices especially in the spring as storage injections begin.  If the U.S. has a hot summer, above average storage injection requirements and growing natural gas export demand, all eyes will be on the production numbers to see if enough supply is available to handle all the demand requirements.  In 2017 we had a very warm winter and a cool summer.  If the opposite occurs in 2018, we could see strong natural gas and electric wholesale prices until natural gas supply production catches up with demand.  Our recommendation is to plan ahead and keep track of prices well before your natural gas and electric supply contract end dates.  We’re available to help track electric and natural gas prices with you or for you to watch for opportunities to reduce price risk.


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