October 2017 Energy Market Update
- Bullish signals: short term weather forecasts and strong production
- Bearish signals: sharp reduction of storage surplus, Increased NG exports, increased industrial demand for NG and hard sell off in Petroleum markets
We are now in the shoulder month of the energy season. Like a broken record, we are still watching an energy market that is very sensitive to anything that will knock the bull and bear price signals one way or the other. Natural gas production is a little stronger than many projected, at the same time the storage surplus overhang is almost gone and is expected to completely gone by the end of October.
Natural gas exports to Mexico is up. In 2009 U.S. natural gas exports to Mexico was 1.4% of U.S. production and by 2021 it’s predicted that maybe up to 11.3% of U.S. production will be exported to Mexico. Exports of LNG is also increasing. The U.S. never exported one drop of LNG until 2016. In the next four years LNG exports is expected to increase as much as 15% of the total U.S. natural gas production. Natural gas consumption by the U.S. industrial markets continues to grow also. Since 2009 natural gas consumption by the U.S. industrial market has risen 33%. Natural gas is now being used more in the making of electric. Nearly 38% or about 200 coal-fired electric generation plants have been retired since 2010. Most of these plants have been replaced by natural gas fired plants. From 2010 to 2016 the amount of natural gas used for electric generation has grown from 15 bcf/year to 29 bcf/year meaning that in 2016 41% of all natural gas production in the U.S. was used for electric generation. In the coming years it’s likely that natural gas will continue to replace more coal fired electric generating plants.
This summer we’ve had quite a few bearish events that in other years would have sent natural gas and in turn electric prices down sharply. A very cool August and hurricanes greatly reduced electric use. However, natural gas prices have stayed in a tight price range. As we’ve said many times natural gas prices are the key driver to electric prices. A more normal winter, the early start of winter or at least the forecast for one is likely what speculators and buyers are waiting on to drive prices up. Our recommendation is if you have natural gas and electric supplier contracts expiring in the next six months we should talk and make sure you are not exposed to a sudden shift up in prices. It’s easy to get complacent when prices have been so stable the past 4-8 months, but history tells us that we should be preparing for the next major market movement.
Read September 2017 Newsletter