June 2019 Energy Update

Key Drivers

1. Milder March, April, May and early June temperatures versus last year
2. 89 bcf/day of natural gas production versus 79 bcf/day in 2018
3. A weak El Nino will likely result in warmer than normal temperatures this summer
4. Nuclear generation in 2019 is trailing 2018 and more plants are to be retired this year
5. Natural gas fired generation to make up most of the Nuclear generation gap
6. LNG export capacity to double in 2019
7. Natural gas exports to Mexico continues to increase as new manufacturing plants are built.  A new pipeline just came in service
8. Natural gas storage is currently 9% higher than last year and 12% behind the 5 year average
9. The trade war may hurt LNG exports since China/Asia is a big client

Commentary

Wholesale natural gas and electric prices are at some of the lowest levels seen in the past 5 years.  Forward wholesale prices for the years 2020 – 2023 are very near the lowest they have ever been.  The interesting part of the wholesale natural gas and electric markets is that the natural gas production supply versus usage demand ratio is very balanced overall. The shoulder months of the year, meaning the time after the heating season and before the AC season, should be a time of short-term natural gas excess and thus some of the lowest prices of the year.  Once the AC load begins in earnest, depending on the temperatures extremes, electric demand will likely push gas and electric prices up.

The question now is will gas production keep up with demand or will prices rise as production falls short?  Many energy traders expected wholesale prices to fall more than they did over the past two months.  Although there were a few times prices traded down a little, a few days later prices would rebound.  This is a strong indication that when the AC load does hit and is combined with strong natural gas fueled electric generation and growing LNG and Mexico exports, prices could rally more than expected earlier this year.  When you add all the key drivers together you have a lot of moving parts that will affect the supply and demand balance and in direct relation natural gas and electric prices.

We highly recommend looking at your energy contracts in June and get comfortable with prices from 2019 – 2023 even if your contract isn’t up for a year or more. As you review your energy strategy along with your supply contracts in June please don’t make the assumption that a price is a price whether bought now or later.  Natural gas and electric are daily traded commodities.  Domestic and global forces affects commodity demand and supply and therefore prices.  There is much more up-side price risk than downside price opportunity.  We understand many of you are experts in your business fields.  We at RD Energy are experts in ours.  We are always available to talk and discuss market trends and your current natural gas and electric supplier agreements to help find the best price opportunities and make sure your company is taking advantage of all the programs available to help lower its energy spend.