Wholesale Natural Gas is currently trading at $2.961 per DTH

The natural gas market continues to be driven by short-term weather forecasts.  Last week the market gapped lower in light trading around the July 4th Holiday only to recover much of that value due to forecasts calling for warmer weather.  One news item did catch my eye as it involved my old friends at TVA.   TVA set a new demand high for this summer when it sent out 28,033 MW at 5:00 pm on July 11th at an average temperature of 91 degrees F.   First, I would note that that power demand is more than 5,000 MW lower than peak summer demand before the Great Recession.  Second, I would mention that TVA has retired roughly 5,000 MW of coal-fired generation, so that even at this lower power demand level they had to be consuming gas at near previous peak levels.  They should have been helped by the new Watts Bar 2 nuclear unit, but that unit has been off-line almost since it came on-line when support beams for a condenser unit collapsed and ruptured the condenser.  FYI, the 28,033 MW send-out is roughly 5X the power demand of Wisconsin (and at a 40% cheaper rate than Wisconsin retail power).

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As you can see the weather forecast have been reasonably accurate of late, with cooler weather in our area while heat is wrapped around us.  With normal heat in the south and up the east coast we will have to keep a close eye on the air conditioning load.  The storage report came in just a tad light this week at a +57 BCF build in storage.  This was short -4 BCF against last year and -16 BCF against the five year average.  In any event, the news had little impact on the market as the August contract lost -2.4 cents for the day to finish at $2.961 /Dth.

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Overall, the market continues to hold its breath.  June has to be characterized as lackluster.  Despite having mild weather this year we only added +55 BCF of natural gas to our inventory against last year.   BP Energy is reporting that demand for gas in June dropped 3.42 BCF/day year over year which suggests that we should have had larger injections, everything being equal.  The problem is that we are still seeing lower production levels than last year even as we see increasing exports, so things are definitely not equal year on year.

That brings us to July and August.  Last year we put very limited quantities of gas in the ground during those two summer months.  In fact we had a very rare summer withdrawal at the end of July last year.  As we then look at the current situation, we are continuing to see very lethargic production numbers and significantly higher LNG and Mexican exports.  Thus if July and August are close to normal heat and air conditioning load this summer, I think the door will have to swing open for the Bulls (not bulldogs) to make a run in the near future.

We established a slightly lower week last week so it has replaced February 23rd as our lower boundary in the price changes graph.  Week-on-week the 2017-18 winter strip was up 8.4 cents this week to $3.216 /Dth while the 2018-19 winter strip gained 6.1 cents to $3.052 /Dth.  The 2018 calendar strip was up 7.3 cents to $2.990 /Dth while the 2019 calendar strip was up 0.1 cents to $2.805 /Dth.

Have a great weekend!

Blake

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