Natural Gas Storage
Smaller Than Expected Injection Hurts Prices
In the last few weeks we have seen smaller than expected natural gas injections. The markets expected a build of 62 Bcf, but the Energy Information Administration reported only a 45 Bcf injection. The natural gas stockpiles are becoming the main concern and driver of market prices these days. While we are still above the 5-year average by 13.6%, we are below last year by 14%.
The market is gaining momentum and the continued poor start to the injection season is a major driver pushing prices upward.
Weather Forecast: A Change in the Weather
Most temperature forecasts for this summer predicted above normal temperatures. The National Oceanic and Atmospheric Adminstration’s latest forecast showed a cooler temperature map for May. May is now forecasted to have mostly normal temperatures with cooler temperatures in the Midwest and Mid-Atlantic. Arizona, Colorado, Nevada, southeast California, southern Texas and Florida are expected to have above normal temperatures.
The 90-day outlook continues to forecast above average temperatures across much of the continental U.S. Arizona, the Gulf Coast and the Atlantic Coast are given an even higher confidence of above normal temperatures.
The Market is Unpredictable
June NYMEX prices ended trading up at $3.35/MMBtu. Last week, NYMEX hit a new high price for the year at $3.43 then went back down to 7.5¢. This upward trend is beginning to have some staying power.
Long-term prices have also seen an uptick. Twelve month strip prices are over $3.40, calendar year 2018 is at $3.13, and calendar 2019 is still under the $3 mark. You can find some security by locking into a long-term deal.
Power prices have begun to ramp up as they typically lag the gas markets. You should be thinking about converting any variable power contracts to a fixed rate, before prices get too high.
Natural Gas Prices Have Gained Momentum Upward
Continued, lower than expected storage injections are driving prices higher. The recent mild weather predictions have helped offset the poor storage story-line.However, June and July are expected to deliver above normal temperatures so don’t expect Mother Nature to continue to help us out.
One item to keep an eye on is Liquefied Natural Gas (LNG) Exports. The growth in US LNG exporting terminals and capacity may have significant impact on U.S. natural gas prices. The U.S. is expected to be a net exporter of natural gas by 2018, meaning we will be able to produce more gas than consumers demand. By 2020, the U.S. will have capacity to export up to 40% of its production; from zero percent just a few years ago. Global natural gas markets show domestic prices to be about half of the market prices throughout the world. It’s easy to see why producers would like to capitalize on high world markets and want to export their gas instead of selling it domestically. The concern is how much will exports impact our domestic prices.