RD Energy Newsletter: September 2018

September 2018 Energy Update

Key Drivers

  1. Natural gas production is up 8 bcf/day since August 2017
  2. Natural gas storage is running at a 23% deficit compared to August 2017 levels
  3. Natural gas Exports to Mexico hit an all-time high in August
  4. The summer of 2018 has not only been hot, but has used a record amount of natural gas in power generation
  5. Natural gas storage is expected to enter the winter season at a 10 year low point
  6. 2019 – 2022 power prices have risen about 4%
  7. Above normal temperatures expected through Mid-September

Commentary

The first prediction for the 2018-2019 winter is in and the Farmer’s Almanac is calling for a very cold and wet winter in the Midwest.  While many people will be waiting for better respected and more official outlooks from forecasters like NOOA, we do need to think about the upcoming winter even when it’s still hot outside.  For those with natural gas and electric contracts up for renewal in the fall, winter, or spring price risk should be a concern.  The fact is, the U.S. has seen growing natural gas production throughout the summer with new production records set each month.  However, the country is still running a 23% storage deficit to last year.  Where is the record natural gas production going if not into storage?  A strong domestic economy + power generation + growing exports to Mexico + growing LNG exports = a very strong demand for natural gas.

Historically the natural gas wholesale market ran in shortage and surplus production cycles.  If we had a warm winter, a gas surplus caused prices to drop that in turn reduced new drilling.  Low drilling and a cold winter would create a natural gas shortage and higher prices.  The cycle would repeat and repeat over many years and decades.  Now things are different.  Natural gas demand is at record levels.  Natural gas production is at record levels.  Natural gas prices and in turn electric prices have been trading in a very small trading window for many months.

As an energy consumer you need to be concerned about risk.  What would a sizeable wholesale price increase do to your budget?  With natural gas production and demand at record levels and winter approaching is there more risk that prices will go up or down in the short term?  We continue to coach our clients with natural gas and electric contracts expiring over the next 10 months to explore fixing a new price soon and reduce your risk.  We know many clients want to wait until 30-60 days prior to the end of their current contract to see what new prices are for the new term.  We recommend looking at prices now and see how they compare to your current contract.  This sets a base line and helps manage your expectations.  Are current prices near or lower than your current price?  Are current prices already over your current contract?  We can help you figure out how your current agreement compares to new prices so you can figure out your appetite for price risk and make informed buying decisions.  At RD Energy we want our customers to understand current price offers versus current contracts and be informed about market conditions so price risk can be studied and better decisions made to protect your budget.


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