March 2019 Energy Update

Key Drivers

1. Record breaking U.S. natural gas production
2. Record breaking U.S. natural gas demand
3. Abnormally cold beginning to March
4. End of the storage season deficit

Commentary

It’s entertaining to watch the wholesale energy traders shift their buy/sell positions every time the temperature forecasts change from one Friday to the following Monday.  We’ve seen some major temperature shifts this winter over several weekends.  NYMEX prices peaked in December and then they went lower as early January and early February warmed up.  The Polar Vortex only effected prices short term, but there was a major draw on storage that week.  In early February, temperature forecasts warmed up for February and March making the natural gas NYMEX fall sharply.  By mid-February forecasters expected temperatures to keep warming.  They also expected to see the storage deficit we had experienced through 2018 to completely disappear.  Suddenly in mid-February temperature forecasts changed showing the last half of February was going to be mostly colder than normal for the rest of the month.  The colder temperatures were expected to move into March as well.  The first week of March is supposed to be the coldest week in March seen in the past 70 years.  March is now expected to be normal or below normal for the first three weeks. According to the February 28^th storage report the U.S storage levels are now running 9% below 2018  and 22% below the 5 year average (2014 – 2018).  Based on the current temperature forecasts the storage deficit will grow with the next two reports.

While all these temperature forecast changes and their effect on natural gas storage is important and interesting, the key driver of natural gas and in direct relation electric prices during 2019 is  the U.S. natural gas production levels versus U.S. natural gas demand levels.  Last summer the U.S. storage fields started and ended the 7 months of the injection season at about the same deficit level even though natural gas productions levels broke new high levels nearly every week.  U.S. natural gas demand broke records as well. Demand was driven by the ever increasing natural gas fired electric generation, the growth of LNG exports, a robust manufacturing sector and growing exports to Mexico.  In 2019 U.S. natural gas production is expected to reach new records while the demand is expected to strengthen as well.  In 2019 LNG export capacity is expected to double over 2018 levels while natural gas fired generation continues to replace coal fired generation at a growing rate.  In addition, natural gas fired generation will be mostly counted on to replace Nuclear fired generation March 1 – May 31 as some Nuclear plants enter their 18 month refueling cycle. 2019 will likely be a year of mostly low to sometimes moderate price volatility for natural gas and electric wholesale prices.  At RD Energy we educate our clients, watch for buying opportunities and create simple or integrated long-term buying strategies.  RD Energy: Where Savings & Strategy Meet.  Learn more at
www.rd-energy.com.