Natural Gas Storage
A Rarity - Gas Withdrawal During Injection Season
Last week, the U.S. Energy Information Administration (EIA) reported a net decrease of 6 BCF when an increase of 2 BCF was expected. A storage drawdown during the injection season (April 1 through October 31) is a very rare occurrence. Several factors contributed to the drawdown including hot weather across most of the U.S., reduced natural gas production, and an increase in natural gas fired electric generation to serve the high demand for air conditioning in the northeast.
Upon news of the drawdown, spot-prices rose 3¢ to $2.88/MMBtu, then eventually settled at $2.85.
Storage stockpiles remain above both the 5-year historic average andthe same period from 2015, at 16% and 13% respectively.
Weather Forecast: The Entire Country Will See Above Normal Temperatures
Once again, the maps below show a lot of orange.This means that temperatures are expected to be above normal.The brighter the orange color, the higher the probability of warmer temperatures. The August outlook predicts above normal temperatures for most of the country, except for southern Texas and the northern center of the country. The 90-day outlook predicts the New England and Southeast to have a high probability of above normal temperatures.
High temperatures were the primary driver of last week’s drawdown in storage reserves. With the 3-month outlook showing above average temperatures for the entire country, we may see more drawdowns or at least smaller than expected injections. Our concern is where will our stockpiles and prices be going into this winter? Everyone should start planning on fixing gas supplies now, before additional concerningstorage reports are posted.
Natural Gas Fired Electric Generation Sets New High
On July 21st, natural gas fired generation set a new all-time high of 40.9 Bcf/day.Despite the new record and the storage drawdown, prices did fluctuate but did not spike. September gas prices settled lower to $2.772/MMBtu and 12-month strip prices are near the $3.10 level.
NYMEX 12-month natural gas strip prices look to be hovering in the $2.90 to $3.20 range thus far this summer. Strong storage stockpiles and cheap Canadian gas have helped hold prices down. However,warmer than normal temperatures, stagnant production and high exports to Mexico are pressuring gas prices to rise.
As we near the half-way point of summer, power wholesale strip prices look to be flat and trending downward for most de-regulated regions (except for ERCOT North).
Market Factors are in Flux
Natural gas factors are in conflict, but prices are holding steady for now. The heat continues to drive pricing and 90 more days of above average temperatures are predicted. The new concern comes from the rare gas storage drawdown. The market seems to have fought through last week’s drawdown, but how many more under-performing storage reports can the market support? We will keep a close eye on this week’s EIA storage report.
Consider locking in winter gas and electric prices now before another concerningstorage report tips the market.