Last month, we mentioned the potential of an extended bear run for energy commodities for the remainder of the summer. With the exception of power markets in TX (ERCOT), and more recently crude oil futures, this has largely been the case. Given that the natural gas market is currently one that has remained oversupplied to the tune of around 2 bcf/day, the natural gas prompt-month contract slid all the way down to $2.07 in early August, effectively bearing the burden of the production surplus with no real volatility to speak of since. While natural gas producers and long position-holders alike may be growing weary of this bear market, from a buyer’s perspective, there is certainly plenty ado about the opportunities at hand. We haven’t seen market bottoms like this in both the natural gas and power markets since early 2016 when the price of natural gas dropped down to ~$1.65/MMBtu. What’s more, we’re on the verge of realizing the lowest summer average Henry Hub natural gas price since 1998.
Unfortunately, this won’t stick around for much longer, as supply growth is beginning to moderate and will continue to do so through the remainder of the year and into early 2020. As that happens, and as present and forecasted demand begins to increase, so too will the price of natural gas and power. As always, there are a few short-term competing factors that will impact price trajectory over the next several weeks and months. Hurricane season is in full swing, with Dorian likely to make landfall in central Florida this weekend. This should serve to further suppress demand in the southeast, though hurricanes always have the potential to negatively impact production and supply infrastructure as well. The short-term weather outlooks for most major demand centers are also largely bearish in nature which should serve to keep a cap on any run-ups associated with extreme heat and increased demand in Texas, whose reliance on gas-fired generation and intermittent renewable generation continues to ratchet up.
Other important energy news.
- Total stockpiles now stand at 2,857 bcf, up 14.6% from a year ago, and down 3.4% when compared to the 5-year average.
- All six of the export facilities that make up the first wave of major U.S. LNG terminals are now producing LNG, though the bulk of current overall capacity is at Cheniere’s two facilities; a second wave of a dozen or so export facilities are under development for start-up in the early to mid-2020s.
- Henry Hub natural gas spot prices for June, July, and August are expected to average $2.37/mmbtu, according to the EIA. If that forecast holds, average summer prices would be at their lowest level since 1998.
To learn more about these developments and to get the latest prices, trends, data highlights, and temperature probabilities, read the full energy update.
If you have any questions, Gary Graham, director of energy management, can take you through the report.