As anticipated, April and May have provided ample opportunities for energy buyers to lock in (or slice off a decent piece of unhedged risk if on a managed product) both natural gas and electricity forward contracts at significant discounts to historical price levels. With the arrival of repeated triple-digit injections into working storage, we saw the 12-mo and 24-mo natural gas strips plummeting to around $2.65/MMBtu for the first time in several years (Spring 2016) in April and May. Coupled with relatively subdued demand resultant of mild weather, natural gas production has continued to chip away at the sizeable deficit since the beginning of the injection season and most of the concerns about where those levels will be next Fall have been put to rest. For those who have not felt so compelled to take advantage of favorable buying conditions driven by what is presently an imbalanced market (+17.5% bcf/d for unadjusted supply/demand), you still have some time. But not much.
LNG has finally been fully dragged into the fray that is the U.S.-China trade war. China has recently announced an increased tariff rate of 25% on U.S. LNG imports, up from the original 10% rate. While this represents a substantial increase, many believe it will have little-to-no impact on the short-term and long-term viability of LNG, as we stopped sending much of our LNG to China when the original 10% tariff was imposed. While much of the LNG will find a home elsewhere (and already has in Europe and Southeast Asia), the fact remains that the U.S. is the world’s fastest-growing exporter of LNG, and China is the world’s fastest-growing importer. And that is not changing anytime soon – just last week, FERC authorized additional liquification capacity at the Freepoint export terminal in Texas, a few weeks after fast-tracking two other LNG projects in Louisiana. There are currently 10 other LNG export projects pending at the Commission.
Other key energy market news.
- Natural gas rallied after the Chinese increased tariff levels on US gas exports to 25%. China’s imports of liquefied natural gas (LNG) soared 32% in 2018, making China the world’s largest importer of LNG.
- FERC tells NYISO and PJM to revamp their wholesale markets to include “fast-smart” units, which will increase average LMP prices.
- After reaching a low point of 1,107 Bcf in March, we should expect to see between 3,700 and 3,800 Bcf of natural gas in storage at the beginning of the next withdrawal season.
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.