RD Energy Update: Rising Price Alert!

Special Edition Energy Update

Important Wholesale Market data you should be aware of:

  1. The natural gas wholesale market was trading range bound for the 5 months of May  – Sept. at an average price of $2.88/MMBTU
  2. NYMEX by the end of September traded at $3.02/MMBTU.
  3. On 10/17/18 the NYMEX prompt month traded at $3.33/MMBTU or up $.45/MMBTU since the end of August.

Why are prices rising so fast?

  1. The U.S natural gas in storage came out of last winter at the lowest point in many years due to the cold winter.
  2. Even with the highest natural gas production in history this summer the deficit was not reduced over the 7 injection months.
  3. Natural gas demand has risen just as fast as production due to NG growth in power generation, LNG export growth and Mexico export growth as well as increased use from a robust U.S. economy.
  4. 2018 had the hottest September since 1950.
  5. Cooling demand has hit the Midwest and Northeast using more natural gas than expected.
  6. It appears that the natural gas storage level heading into this winter will be the lowest since 2005.

Will we see a price pull-back any time soon?

  1. With the storage deficit hanging over the wholesale market place it doesn’t look hopeful.
  2. Many were looking at September and October for hope of a major price dip.  It didn’t happen in September and is not likely in October.
  3. Winter forecast consensus is coming in with slightly warmer than normal temperatures through December and a very cold middle to end of winter.

Commentary

We have talked nearly all summer about the natural gas supply versus demand balance in the U.S.  It is very concerning when the highest natural gas levels ever produced in the U.S. didn’t make much of a dent in the storage deficit.  Most customers saw the warning signs and fixed natural gas and electric rates for multiple years to lower their price and lock in price certainty.  However, there are those that no matter what they hear or read always believe prices will fall their way when their current contract ends.  For many consumers contracting a lower rate at the end of each contract term has been the way of life the past few years, but should we expect that to always be the case?  Red flags have been flying all summer long and the data has been available to see the warning signs.

There is some hope for a price dip if November and December turn out to have much above normal temperatures.  We’ve not read any forecasts expecting that, but there’s always a chance.  The mild El Nino slowly building in the Pacific normally means cold weather for the Midwest and northeast.  Only if El Nino strengthens to be labeled as strong will the Midwest and northeast get mid temperatures all winter.  No one is forecasting a strong El Nino.  In addition, the North Atlantic Oscillation has recently moved from positive to negative.  This means that the blocking ridge near Greenland is stronger and buckling the jet steam which brings the Midwest and northeast below normal October temperatures the rest of the month.  The blocking ridge can strengthen and weaken throughout the winter. If it stays strong November and December could turn out colder than some expect.  If it weakens, the jet stream won’t buckle as much and we get warmer weather for a while.  There’s so much that plays a role in our winter weather, from ice pack in eastern Canada (right now another bullish temperature factor for us) to Sunspot cycles (even another bullish temperature factor for us).  LNG exports are mostly heading to Europe and Asia. If they too get a cold last half of winter as expected in the U.S., strong LNG exports could raise prices here in the U.S.

For those who have fixed natural gas and electric prices through 2019, 2020 and 2021 you can breathe a sigh of relief for the coming winter.  Anyone who has natural gas and electric contracts up for renewal in the coming winter months or anytime in 2019 please contact us so we can discuss your options and help you make a plan immediately.  Some have asked if they “are safe if their contract is up mid to late 2019?” At this time we would have to say no.  If we enter this winter with a storage deficit and have a cold last half of winter, then it is very likely the storage deficit will be just as low as at the end of last winter if not lower.  The growing demand isn’t forecasted to slow down next year.  The U.S. natural gas production would have to meet the still growing demand plus make up the large storage deficit.  This will place strong pressure on natural gas prices all summer long.  Again, if you have any concerns about where your natural gas and electric contracts are at this time and are wondering if we should discuss and evaluate it, then contact us and we’ll be happy to discuss it and explore what needs done.


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