September 2019 Energy Update
Key Drivers
- Natural gas storage levels are higher than 1 year ago at this time by 14.6%
- Natural gas storage injections are on pace to enter winter 3% below the past 5 year average
- Upcoming major drop in natural gas fired generation expected as we near the end of summer
- Strong U.S. natural gas production continues as expected
- New LNG liquefaction plants continue to ramp up increasing natural gas demand
Commentary
For the past couple of months, traders have pointed to the last week of August through October as a time we could see natural gas prices plunge. High natural gas production, lower gas fired electric generation, cool mid-west and northeast temperatures, tropical storms and hurricanes cooling down the southeast with rain along with strong natural gas storage levels are all the bearish fundamental factors that would cause the plunge. It was just a month or so ago that most bearish forecasters believed we could see natural gas NYMEX fall to 2016 levels, near $1.75/MMBTU. While many others thought the $2.00 – $2.10 price range was more realistic. After trading around $2.15 – $2.23/MMBTU for the past couple of weeks, NYMEX took the slightly bearish news from the weekly storage report and reversed trends and expectations by pushing up prices up $2.29/MMBTU at the time of this writing.
The reason for the unexpected natural gas price strength will become more clear in the days ahead. Is it driven by traders lowering their short positions or are there some other fundamental drivers simmering just out of view? While there are still large pockets of the country with above normal temperatures and exports to Mexico are up ever so slightly, it may be the new LNG liquefaction facilities ramping up and adding to demand that may be the hidden driver.
LNG exports have been a concern for the fall and winter. With new plants being built and coming into service the question of is there enough demand in Europe and Asia for all of the supply is the main concern. Europe came out of last winter with a high amount of storage still in the ground due to mild temperatures. The trade war with China is sure to hurt LNG sales, too. LNG exports may be stronger than expected now, but can that continue if the demand isn’t there before winter arrives? Will the LNG tankers become floating storage sources for Europe and Asia? If that happens, will a natural gas glut eventually appear and prices plunge? This fall and winter is shaping up to be a very interesting time to watch natural gas supply and demand globally as well as watch how domestic prices are effected along with the price American consumers pay for natural gas and electric.