natural gas

natural gas

Thursday, April 21, 2016

Natural Gas Corner - Market Update - The Month In Review

The natural gas market finished a record warm winter with the second highest amount in storage totaling 2,468 Bcf (billion cubic feet), falling 4 Bcf short of the current record of 2,472 Bcf set in 2012.

A seasonal post-winter rally higher is currently in progress from the 18-year spot contract low of 1.611 reached in early-March.  The rally from the March low has lifted the spot contract higher by 33% with a smaller 23% gain in the winter 16-17 strip, and an 19% increase in the summer 17 strip.

Recent strength in the market comes after a change in the near term weather forecasts which have put colder pockets of temperatures into areas of the U.S. potentially boosting end of winter heating demand.  The longer range 30 and 60 day forecasts for this upcoming summer also suggest an early start to the summer cooling season with above-normal temperatures forecasts across much of the southeastern U.S. during May and June.

The market is currently pricing in uncertainty regarding upcoming summer cooling demand for natural gas.  As summer progresses and this uncertainty is lessened, the market should once again focus on storage which could be record high for a second year in a row.

Other factors which could keep the market in a sideways to higher uptrend over upcoming weeks are power generator demand and falling U.S. production.  Power generator demand for this upcoming summer is expected to be record high increasing from 22.32 Bcf per day in 2014 to 26.50 Bcf per day in 2015, up 4.18 Bcf per day or 19%.  D

Demand of natural gas has been increasing in part due to coal plant retirements, increased regulations, and lower natural gas prices .  The current high for summer power generation demand is 29.93 Bcf per day in 2012 with the EIA forecasting summer 2016 demand to be a record high 30.42 Bcf per day.

Another factor which could be supportive for natural gas prices has been a small decline in production estimated by Platt’s/Bentek to be 71.2 Bcf per day (dry-gas) which is down 2.6 Bcf per day or 3.5% from the 73.8 Bcf per day record high reached in February.

The U.S. also began exporting LNG from the U.S. in February with current exports of .5 Bcf per day expected to increase to 1.3 Bcf per day in 2017 and possibly above 9 Bcf per day by 2019 as all export facilities currently approved are completed. 

However, these factors may not be enough to offset storage which the EIA forecast in the April Short Term Energy Outlook to reach a  record high 4,112 Bcf by the end of October surpassing last year’s 4,009 Bcf high.

Seasonally, the  natural gas market typically has a final year end decline once a summer high is set.  Over the past 3 and 5 years, the seasonal decline has led to a new price low for the year being set.  Whether or not a new low is  set later this year, expected upcoming weakness should be used to aggressively add forward coverage in the market which could be posting a multi-year price low.

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