Natural Gas Storage
Pricing Remains Highly Correlated to Storage
Natural gas storage gained only 39 BCF last week, slightly below the projected 42 BCF. Upon the news, August prices initially bumped up 3.6¢ to $2.822/MMBTU, and then settled back down to $2.782. Gas prices have been jumpy this past week. After a steady climb to the $3 threshold, prices took a sharp 20¢ dip on Tuesday.
Gas storage still remains solidly above the 5-year average and same time last year levels; even though the injection rate is 25% slower than the 5-year rate and 40% slower than last year.
Our concern is if El Nina raises temperatures as predicted, storage levels will drop as more natural gas electric generation will be required. As more gas is diverted into power generation, we could see a significant loss in gas storage and possibly sending prices further upward.
Weather Forecast: The Entire Country Will See Above Normal Temperatures
The maps below show all orange. Temperatures are expected to be above normal. The brighter the orange color -- the higher the probability of warmer temps.
Both the 30 and 90-day outlooks predict the New England and southeast to have a high probability of above normal temps. Looking long term, west of the Rockies is also expected to experience higher than normal temps for the duration of the summer.
In July, we will experience the transition from El Nino to La Nina. The biggest impact from the transition is an increase in Atlantic hurricanes. This can be disastrous when they hit the oil producing regions.
The impact on energy could be significant. Typically, parts of the country may experience hot temps, while other regions are normal or below. When temps vary across the country, electric generation may be transported from neighboring regions to help ease peak demands caused by high temps. When the entire country experiences above normal temps and all regions are seeing high peak demands, no load sharing can occur. As a result, regions are forced to generate needed power from resources that are typically not needed. These generators are usually less efficient and more costly. As a result, regions may see higher electric costs as well as greater natural gas withdrawals; both driving up current electric prices and winter gas prices.
Gas Prices Are Becoming Erratic
August prompt month prices have jumped up, surpassing the $3/MMBTU threshold. For the first time this year, 2016 monthly prices are higher than 2015 (see graph below). July saw prices ramp up and then experience a one-day drop of 20¢. Prices are looking more unpredictable.
Natural gas price increases have only impacted the near-term months. Long-term strip prices remain stable.The 2017 calendar strip prices are trading at a premium to the 2018 prices. This price phenomenon is referred to as “backwardated pricing”; where longer-term calendar strips are lower than near-term calendar strips.
Power prices have continued their upward trend since the spring. This is mostly due to the predicted hotter summer temps and the increase in gas prices.
Finally, the U.K.’s “Brexit” hasn’t shown much near-term impact on U.S. energy markets. However, we should keep an eye on long-term impacts of reduced global demand for crude oil and LNG.
Prices Are Jumpy
Prices have become somewhat unstable. The above normal temps to start the summer have continued the upward push on energy prices. However, price increases have only impacted the near-term months. The long-term contracts remain low and stable, for now.
Take a serious look at locking in winter gas and electric prices.