How this mild winter has impacted the energy market.Not only is winter officially dead, but it seems it never drew breath to begin with this year. Per NOAA, the last month of 2019 was the second-warmest December in the 140-year recorded history, January 2020 was the warmest ever during the same time period, and this February could very well be on track to top the charts as well. As mentioned last month, this has significantly impacted national heating demand, resulting in muted average withdrawals from working underground storage, and both natural gas producers and prices (April contract is trading below $1.70/MMBtu) have borne the brunt of the impact. It certainly did not help that natural gas production continued to peak throughout the end of 2019, culminating in November, just ahead of winter’s expected arrival. With spring looming on the horizon, weather models will begin to have less of an impact on daily price movement, and analysts will turn their attention to the remainder of the fundamental factors at work as the prompt contract flips from March to April – namely: production, fuel-switching/power-burn, and exports.
As previously mentioned, natural gas production has been steadily declining since the beginning of the year due to the unfavorable associated economics, a trend that is expected to continue throughout the remainder of 2020. The EIA estimates dry gas production will drop by 600 Mcf next year, the first annual decline since 2016. This should help to support natural gas prices moving forward. HFI research has reported that heading into Spring last year, the structurally oversupplied market resulted in ~2 Bcf/day in surplus, while 2020 should reflect a slight deficit of around 1 Bcf/day. This will result in smaller injections than what we saw last year, which as a reminder, when combined with a lack of any real demand spikes, have led to the massive 40.8% difference in storage levels we are seeing now compared to a year ago.
- Total stockpiles now stand at 2,343 bcf, up 35.4% from a year ago, and 9.3% higher when compared to the five-year average.
- Natural gas production has been steadily declining and projected to continue its decline through 2020
- Coronavirus has reduced the Chinese demand for US LNG exports.
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.
