Natural Gas Storage
Nice Gain to Stockpile - Little Impact on Prices
Last Friday, EIA reported an injection of 72 Bcf, beating expectations by 14%. The positive gains to stockpiles lifted levels to over 6.5% of the 5-year average, but still 9% under this time last year. Upon the release of EIA’s report, the market responded with a 1¢/MMBTU increase.
This time of year the storage report does not have a large impact on energy prices unless EIA’s report is significantly different than expected. Mother Nature and her temperatures are the biggest energy price drivers during this part of the year, followed by the demands of natural gas power generation and then natural gas production and drilling.
Weather Forecast: Hot! Hot! And Hotter!
The NOAA forecasts above normal temperatures for almost the entire U.S. for July and the remainder of the summer. The regions of Arizona, Utah, Florida and New England have a high probability of experiencing well above normal temperatures throughout the summer. Only the Pacific Northwest and Montana are predicted to have normal temperatures.
Another Dip in Prices
August NYMEX prices are trading at $2.92/MMBTU, down 4% from our last report, which had the prompt month trading at $3.04/MMBTU.
Natural Gas Spot Prices are trading at $2.901/MMBTU, significantly down from this summer’s high price mark of $3.424 set on May 12th.
Since last month, all natural gas strip prices are down again with 12-month strip prices at $2.944, down from the previous two months of $3.11 and $3.40. Calendar year 2018 is down to $2.914 from the previous month's $3.035 and $3.13. Calendar 2019 also dropped to $2.798, down from last month's $2.87.
The market has continued to dip. You should consider taking advantage of today’s prices and lock into a long-term fixed price.
Power Prices (the energy commodity component) have also experienced a dip in the past week. But, as we wrote about last month, capacity prices are jumping up and offsetting the drop in commodity prices. It’s still a great time to look at long-term electric prices.
Natural Gas Prices Have Dipped Again
Energy prices have dropped again – both near-term and long-term. If Mother Nature cooperates and allows moderate temperatures, prices may hold steady. But the 90-day forecast shows temperatures to be well above normal for almost the entire continental US. Once temperatures rise across the nation, three factors come into play:
- Everyone will crank up their air conditioning to get relief from the heat. When AC usage increases, greater demands are made on the power grid and more generation plants (the less efficient ones) are brought on-line. Many of these power plants use natural gas to generate electric energy. This sudden spike in natural gas demands may cause near-term price spikes on natural gas and electricity.
- In the summer, the market tries to produce more natural gas than users need and then store the excess gas in underground caverns and aquifers. The excess gas placed in storage is then used to supplement natural gas pipeline deliveries in the winter, easing pipeline constraints and price volatility. When natural gas is used for power generation, the gas is diverted away from storage facilities, thus reducing the supplemental gas available for next winter and beyond. Simple economics tells us that when demand increases and supply (in this case storage levels) decreases, prices will go up. As a result, hot summer temperatures will cause long-term increases in natural gas prices.
- When a small region of the country experiences high power demands, that region can often get relief from neighboring regions via exported electricity from their reserve generation margins. When high temperatures and power demands occur across wide regions, reserve generation is not available to be shared by neighbors. As noted in #2, the supply and demand rules apply again. Lowered reserve generation (lowered supply) during high wide-spread high temperatures (high demand) will result in higher electricity prices.
There are still a few days left to take action and lock-in these low energy prices before the summer temperatures arrive. Now is the time to think about your energy procurement strategy.