As we transition to the arrival of peak season in the natural gas market, there is an abundance of both existing supply and forthcoming demand, so it should be viewed as a fulcrum of sorts in several ways.
Firstly, underground natural gas storage will have reached its highest levels of the year at this point, as the injection season has officially come to an end per EIA reporting data for the week ending Nov. 8th. Heading into peak season last year, there were grave concerns about the levels of working underground storage (~17% deficit to 5-year average) that led to extreme volatility in late November and early January. Today, there are very few concerns about natural gas stockpiles (3,638 bcf) as production is now at an all-time high, and while we expect Lower 48 gas production to fall in Q1 2020 (March), this bodes bearishly for prices going forward.
Secondly, peak season also signifies the beginning of peak demand season, driven by a gradual increase in heating demand and corresponding increases in the accumulation of heating degree days (HDDs). Increased heating demand has a more profound impact on withdrawals than ever before, as the commodity has continually earned a larger share as a fuel source of the electricity generation mix. In fact, the commodity’s relatively low price throughout the past two years has launched natural gas’ share of domestic electricity generation to 37%, up significantly from 25% in 2011. The first withdrawal (when overall demand outweighs supply/production) of the season was reported for the week ending Nov. 15th (94 bcf), and while that is a substantial initial withdrawal on the heels of elevated demand levels in mid-November, the price has still failed to reach the $3 mark. Considering that overall, this November has been equally cold when compared to last November, this further underpins the bearish market sentiment. It will take a major cold front to have any significant bullish impact on the market as we move into December.
Other important energy news.
- The EIA reported Thursday morning that, for the week ending November 15, U.S. inventories decreased by 94 Bcf. This fell within, albeit on the higher side of, the trading range of 82 to 99 Bcf, and more than the consensus withdrawal estimate of 89 Bcf.
- The Federal Energy Regulatory Commission approved three proposed new liquefied natural gas export facilities in Texas and the expansion of another, which will roughly double current U.S. LNG export capacity.
- Later in the outlook (11-15-day), a variable pattern will take over as both the Arctic and North American Oscillations indices turn positive (warmer signals) but confidence remains low.
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.