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

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $3.042 per DTH

As you can see from the lead in, prices have popped up again this week.  Just like in Casablanca we will looking at the usual suspects this week – weather and production.   Every weather chart that NOAA puts out for 2017 is again showing red, including the most recent 6-10 day chart.

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As of today the extreme heat is still concentrated in the SW, West Texas and part of the plains.  However, at the moment, Tuscaloosa (Roll Tide) and Madison (Go Badgers) are both showing the same temperature.  But despite these much more mild current temperatures in the US, especially in the SE, we are still not seeing the injections into gas storage that we would like to be seeing right now.  While today’s report of a +46 BCF storage build (slightly below expectations) was 5 BCF stronger than last year it was also -26 BCF off the 5 year average.  This still leaves us -319 BCF behind last year’s pace.  I am not sure yet how other analysts are viewing the report, but to only inject +46 BCF into storage when much of the air conditioning demand is idling is very disappointing.

Certainly the warmer weather forecasts along with gas production concerns played a major role in pushing the July gas contract off of its recent $2.877 /Dth low to its close yesterday at $3.067 /Dth.  With the August contract moving to the front position there was an attempt to push higher but the Bulls just could not gain ground today so we saw the August contract close at $3.042 /Dth in its first full day as prompt.

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With the markets moving up we saw the 2017-18 Winter strip gain 9.8 cents this week to $3.272 /Dth while the 2018-19 Winter strip sits at $3.053 /Dth unchanged for the week.  The 2018 Calendar strip was up 2.7 cents this week to $2.991 /Dth while the 2019 Calendar strip was at $2.849 /Dth off 2.2 cents.

I will be on vacation next so I would like to wish everyone a Happy July 4th Holiday.

 

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $2.894 per DTH

Too hot to fly.  Too hot to fly?  You know it just takes me a bit to wrap my head around that statement.  Most of us know that electronics can have problems with the heat.  They eventually had to put air conditioning into our tanks, not because of crew comfort, but because the electronics that ran everything from the laser range finder to the gun stabilization system would fry out after a few days in the desert.  But too hot to fly?

Fortunately, that extreme heat is confined into the US southwest, although some of it was creeping into west Texas and the plains states today.  The east continues to be cooler than normal thanks now to Tropical Storm Cindy.  Nevertheless, I was piqued by a gas market comment that I have seen every week for about six weeks now.  “Milder weather should allow natural gas inventory building to ramp up the pace.”  We certainly got a hint that this might happen the week of Memorial Day, but today’s storage build of +61 BCF has to be characterized as another disappointment regardless of “expectations”.

As I mentioned last week, people have been playing up the production gains out of the Permian and the Marcellus basins.  Those statements are usually accompanied by a comment about how we have doubled the number of drilling rigs in the last year.  But here is the chart that tells the rest of the story:

As you can see, we have indeed doubled the drilling rigs, but that still puts us well below the number of rigs that were drilling when we were adding abundant new supplies.  Moreover, while drilling rig efficiency is improving it is not improving by the leaps and bounds of a few years ago.   So again, where is all of this new gas production the market is expecting and when will it show up?  Or is any new production going to be soaked up by the increasing commercial, industrial and export demand we are seeing?  As always, the weather will play a major factor, but it continues to be a wild card.  NOAA is still forecasting a hot July, but then again it forecasted a hot June and we have seen how that has worked out for just about everywhere except the US Southwest.

On Monday the market gapped lower on forecasts for continued mild weather, but it has since struggled to build momentum for a further move in either direction.  Again, while today’s injection was slightly above expectation it lost ground against the year-on-year inventory and the 5 year average inventory, so the July contract closed today at $2.894 /Dth, up 0.1 cents for the day.

This week’s move lower translated into the 2017 summer strip losing 8.9 cents to $3.031 /Dth and the 2017-18 winter strip declining 11.3 cents to $3.174 /Dth.  Meanwhile, the 2018 calendar strip dropped 6.8 cents to $2.964 /Dth while the 2019 calendar strip gained 0.2 cents to $2.870 /Dth.

On the change chart we can see that the front of the curve has now moved below the February 23rd low that we had been tracking.   There are at least two more things to keep an eye on in coming weeks.  First, the last two weeks of June last year were hot with very low storage injections.  If we do not see significant additions to inventory versus last year in the next two weeks the bears are going to have a serious problem.  Second, albeit a longer term consideration, is that oil closed at $45.22 a barrel today which is well below the $50 that analyst claim the shale oil plays need to be economic.  Why is that important?   Oil shale production is important because a lot of associated natural gas comes from those oil fields.  A number of the Houston analysts have said that we will not have real growth in gas production with oil below $50 a barrel.

Do you ever feel like you are playing roulette and your not sure where that spinning wheel is going to land?  Stay tuned.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

 

Wholesale Natural Gas is currently trading at $3.056 per DTH

The 90 degree weather has left Wisconsin so we are back to a very nice 84 F with a light breeze.  Today was so nice that Nancy and I decided to do our first outdoor swim of the season up at Blue Mounds State Park.  It turns out that the recent hotter weather has the water at a very comfortable, albeit cool, temperature.  Yep, summer is definitely here.

One of my friends sent me a fluff piece this week that focused on the increased gas production from the Marcellus and Permian basins.  If it were talking about oil, I would say that the article was gushing.  However, it is important to remember that natural gas production is like trying to swim upstream in a strong current.  While those two basins may in fact be producing at record levels there are literally dozens of reservoirs that are depleting.  You can think of a natural gas well as similar to a balloon.  When the balloon is under pressure it wants to release all of that air back out in an almighty rush.  If it was not for the control equipment a gas well would do the exact same thing.  Thus the highest pressure and the greatest production comes from a gas well on the first day of production.  The bottom line is that gas wells deplete very quickly, so in order to increase production you have to constantly replace depleted production before you can make any gains.  This is why someone can right a factual story about leaps in production in a couple of basins while overall production declines or grows much more moderately.

I mention this because we saw a very disappointing +78 BCF storage injection number today which again suggests that gas production is still not coming near to expectations.  And to pile on, NOAA has refreshed their July forecast and they still are insisting that most of the nation will experience a hot July.

Last week’s storage number had us testing the $3.00 support level this week and we even got under $3.00 for a couple of days.  However, today’s +78 BCF surprised the market and quickly pushed us from $2.95 /Dth in the minutes prior to the storage release to $3.03 /Dth immediately following the release.  The July contract never looked back and managed to gradually uptick and finish the day at $3.056 /Dth, up 12.3 cents.

Just as the storage surprise pushed the July contract back above $3.00, it also reset most of the strips close to last week levels.  Week-on-week the Summer 2017 strip finished at $3.12 /Dth, up 0.9 cents, while the 2017 winter strips gained 0.1 cents to $3.287 /Dth.  Meanwhile the 2018 calendar strip faded 0.3 this week to $3.032 /Dth while the 2019 calendar strip gained 0.4 cents to $2.868 /Dth.

As I said last week, if you want to see lower gas prices, then we need a strong June with a lot of gas going into the ground.  This was not a good start for that narrative.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

 

Wholesale Natural Gas is currently trading at $3.028 per DTH

It has been a beautiful week here in Blue Mounds.  As we get ready for summer we stopped by Blue Mounds State Park this week and got our summer passes.  The pool will not be opening until the weekend, but it was a beautiful sight to see about a dozen hawks riding the thermals around the mounds.  The weather has been so clear that we could see the dome of the state Capitol over in Madison some 35 miles distant.  I would be happy if the weather just stayed this way.

The mild and beautiful weather that much of the nation has been having translated into an announced gas storage build this week of +106 BCF.  This was the first strong build that we have seen this season and it cut into the annual deficit by 38 BCF, thus reducing the year-on-year deficit to -332 BCF.  Nevertheless, the expectation for the week was a build of +98 BCF which had already pushed prices down near the $3.00 /Dth mark, so that expectation combined with a hint of heat on the horizon helped to maintain support for the gas price.  Gas for the day was up 0.8 cents to $3.028 /Dth.

However, June is going to be a critical month in determining where gas prices are going to go this year.  Looking back at last year, the four weeks of June only produced a total gas injection of +207 BCF.   And to refresh, we are just coming off of a +106 BCF weekly injection.   In other words, if June heat fails to materialize, we will make a serious dent in the year-on-year storage deficit in just one month and will likely see some more downward pressure on gas prices.

There were two news items of interest this week.  First the EIA has lowered its natural gas production growth for the rest of the year based on lowered expected gas prices.  Second, the EIA is reporting increased power generation coming from coal.  That latter should be no surprise as gas prices have basically doubled year on year so some coal generation that was out of the money is back in the money.  However, we could be looking at the power generation ying and yang again as mild weather will likely push gas prices down which will then make it cheaper than coal again.  The economics of power generation are very tight.

Again we had another week where a small move to the front of the curve translated into small moves along the back of the curve.  The 2017 summer strip rose 1.1 cents this week to $3.111 /Dth while the 2017-18 Winter strip gained 1.9 cents to $3.286 /Dth.   The 2018 calendar strip changed 2.3 cents week-on-week to $3.035 /Dth while the 2019 calendar strip moved up 2.2 cents to $2.864 /Dth.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $3.008 per DTH

I have to admit to be saddened by the decision out of Washington this afternoon.  However, I am cheered by the fact that having worked for a number of large energy companies I know that most of them invest their billions based on actual facts and science.  Thus the action this afternoon will not do things like restore American coal jobs.  Those jobs were lost the minute that scientists and engineers figured out how to access the natural gas in shale rock through horizontal drilling.  In fact the timing of the new technology was almost perfect in that it coincided with sky-rocketing O&M costs for those vintage 1950’s coal plants.  That is why the TVA began bailing on coal plants years before the MATS standards and Clean Power Plan were scheduled to take effect.

Everyone may not agree on climate change, but I think we can agree that we have had relatively beautiful weather over the past week here in Wisconsin.  And according to NOAA we are in for much of the same – at least in terms of temperatures.  (I know we have been having rain, but the farmers out in Barneveld were telling me at breakfast today that we only had 6 days without rain in May this year.)   The current NOAA forecast continues to show the eastern US at below normal temperatures in coming days.

The continuation of the mild weather combined with today’s EIA storage report of a +85 BCF build continued to push gas down for the week.  Looking back, the June gas contract rolled off the charts at $3.236 /Dth last Friday.  The July contract, which closed on May 12th at $3.498 /Dth, has now fallen $0.49 /Dth in less than a month.  The bears seem to be firmly in control, but be careful with that assumption.

First, the market is reacting to near term weather.  I still have not found a weather forecaster that says that we are going to have a cool summer.  There are those that say that we will be cooler than last year’s record summer heat, but none that have said we will have a cool summer.  Second, while the expectation remains in the market that a wave of new shale gas will be showing up, the reality is that it is still a no show.  While today’s storage report was a mild surprise to the upside it still only changed the year-on-year deficit by one (1) BCF.  Another week is gone and we are still -370 BCF behind last year.  So while the market may be in a downward move right now it could easily reverse on just one weather forecast.

The Price Changes chart shows you just how far we have fallen.  The $3.236 /Dth was the June close.  Looking at the red line, you can now see how close we have come to the lows of late February.   This downward cycle also shows in the strip pricing.  The Summer 2017 strip was off 14.5 cents for the week to $3.100 /Dth while the 2017-18 Winter strip fell 22.6 to $3.267 /Dth.  The 2018 Calendar strip was down 8.3 cents week-on-week to $3.102 /Dth while the 2019 Calendar strip lost 1.6 cents to $2.842 /Dth.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $3.008 per DTH

I have to admit to be saddened by the decision out of Washington this afternoon.  However, I am cheered by the fact that having worked for a number of large energy companies I know that most of them invest their billions based on actual facts and science.  Thus the action this afternoon will not do things like restore American coal jobs.  Those jobs were lost the minute that scientists and engineers figured out how to access the natural gas in shale rock through horizontal drilling.  In fact the timing of the new technology was almost perfect in that it coincided with sky-rocketing O&M costs for those vintage 1950’s coal plants.  That is why the TVA began bailing on coal plants years before the MATS standards and Clean Power Plan were scheduled to take effect.

Everyone may not agree on climate change, but I think we can agree that we have had relatively beautiful weather over the past week here in Wisconsin.  And according to NOAA we are in for much of the same – at least in terms of temperatures.  (I know we have been having rain, but the farmers out in Barneveld were telling me at breakfast today that we only had 6 days without rain in May this year.)   The current NOAA forecast continues to show the eastern US at below normal temperatures in coming days.

The continuation of the mild weather combined with today’s EIA storage report of a +85 BCF build continued to push gas down for the week.  Looking back, the June gas contract rolled off the charts at $3.236 /Dth last Friday.  The July contract, which closed on May 12th at $3.498 /Dth, has now fallen $0.49 /Dth in less than a month.  The bears seem to be firmly in control, but be careful with that assumption.

First, the market is reacting to near term weather.  I still have not found a weather forecaster that says that we are going to have a cool summer.  There are those that say that we will be cooler than last year’s record summer heat, but none that have said we will have a cool summer.  Second, while the expectation remains in the market that a wave of new shale gas will be showing up, the reality is that it is still a no show.  While today’s storage report was a mild surprise to the upside it still only changed the year-on-year deficit by one (1) BCF.  Another week is gone and we are still -370 BCF behind last year.  So while the market may be in a downward move right now it could easily reverse on just one weather forecast.

The Price Changes chart shows you just how far we have fallen.  The $3.236 /Dth was the June close.  Looking at the red line, you can now see how close we have come to the lows of late February.   This downward cycle also shows in the strip pricing.  The Summer 2017 strip was off 14.5 cents for the week to $3.100 /Dth while the 2017-18 Winter strip fell 22.6 to $3.267 /Dth.  The 2018 Calendar strip was down 8.3 cents week-on-week to $3.102 /Dth while the 2019 Calendar strip lost 1.6 cents to $2.842 /Dth.

 

Have a great weekend.

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $3.182 per DTH

I was very proud to become an officer of the Blue Mounds Historical Society this week.  As a historian, a veteran and a senior citizen (at least by the reckoning of some folks), I think it is critical for people to know their history.  In this case, Blue Mounds has a very significant and colorful history that has not been as well documented as other towns in Wisconsin.  But I would encourage all of our schools to adopt a strong living history programs so that we can retain as much of the history of our towns and the men and women that reside there as possible.  Whether one goes to the local nursing home or the local VFW, there are a lot of people out there with stories to tell.

And while there are plenty of exciting stories out there, natural gas was not one of them this week.   Basically after today’s +68 BCF storage injection we are almost exactly back where we were 2 weeks ago at $3.182 /Dth, down 1 cent for the day.  While much of the north is still showing as cooler than normal, this is less problematic now than the cooler weather in south that is souring demand from the power sector.  So while this week’s storage build was a bit stronger than expected, it still under-performed against last year and the 5 year average leaving the market to scratch its proverbial head.

Thus the market has been happy to see freezing weather dissipate (thus a pull back in prices this week), but it is still lacking that strong directional signal, like a major uptick in gas production, that it continues to look for week after week.  Again, that puts us right back to where we were two weeks ago with the expiration of the June contract coming up next Friday.

Looking at the rest of the market, the 2017 summer strip sits at $3.249 /Dth, off 12.2 cents for the week.  The 2017-18 winter strip also moved down 13 cents to finish at a nice round $3.500 /Dth.  The 2018 calendar strip lost 5 cents this week to $3.092 /Dth while the 2019 calendar strip gained 0.4 cents to finish at $2.872 /Dth.

And here is my final thought for the week.  Thirty-seven years ago I moved to Houston, Texas, and was hired into the energy industry.  If your sons and daughters are pursuing a liberal arts degree just remember that it is the ability to learn and curiosity that matter most when it comes to careers.

 

Have a great weekend!

 

Blake

 

Past copies are available on our website at  http://mepsolutions.org/monthy-market-updates/

 

We are also available on Twitter at @MEPNatGas with updates on natural gas prices as well as national & Wisconsin gas industry news.

Wholesale Natural Gas is currently trading at $3.376 per DTH

After four days in Houston at the Argus America’s Gas Conference we are now brimming with confidence that gas prices will go up, if they do not go down, and that the weather will be hot unless it is cold.  In other words, our search for clarity concerning the gas markets came up just a wee bit short.  I will address some of the issues in future weeklies, but there is consensus that demand is continuing to increase on multiple fronts and that almost everyone is expecting production to increase, especially if oil stays over $50 a barrel, but starting to get nervous over the lack of signs of increases in the current reports.

However, the conference was over-shadowed by news on Wednesday that the FERC has suspended all drilling related to Rover Pipeline after a series of accidents on this Energy Transfer project (the same people that built the Dakota Access Pipeline).  This news is important to us, because much of the drop in Wisconsin basis that we saw this spring was predicated on Rover Pipeline being in-service this winter.  Right now the basis markets are still trying to assess the importance of this news with the critical questions being (1) how long will the FERC suspend work, and (2) will it delay the start-up of this pipeline beyond the coming winter season of 2017-18?

And while the basis market was dealing with the Rover Pipeline news, the gas futures have been gaining strength thanks to the cooler temperatures and a gas storage report issued today that came in below expectations with a build of just +45 BCF.  This news allowed the June gas contract to tack on another 8.4 cents today to finish at $3.376 /Dth.  One potentially bearish piece of news is that the Commodity Weather Group announced at the Houston conference that they expect this summer to be markedly cooler than last year’s record heat.  At  the same time the EIA has scaled back its forecast for the amount of gas the power sector will burn this summer due to the current price strength in natural gas.

As they typically do, the strip prices followed the lead of the June gas contract.  The 2017 summer strip was up 13.0 cents week-on-week to $3.371 /Dth while the 2017-18 winter strip rose 14.9 cents to $3.63 /Dth.  The 2018 calendar strip was up 6.4 cents this week to $3.142 /Dth while the 2019 calendar strip retreated 1.0 cent to $2.868 /Dth.

The weather in Houston was extremely nice this past week with lots of folks enjoying the open air.  That is something of a rarity in very humid Houston, but one of the points that was raised by the weather forecasters at the conference is that May weathr is a very unreliable predictor of the following summer.

 

Have a great weekend!

 

Blake

Wholesale Natural Gas is currently trading at $3.186 per DTH

This is still a market looking to be moved.  With the lingering cooler spring weather in much of the nation one would think the bears would be taking charge.  However, there seemed to be a lot of overall concern weighing on the market this week with everything from lower oil prices to lower car sales and expectations for lower economic growth both here and in China weighing on the market.  Plus, within the gas markets, despite the increases in drilling rigs and increased shale gas production, we are just not seeing signs of the expected surge in gas production.

The weekly EIA storage report came out today with a build of +67 BCF.   While this was above expectations, it was on par with both year ago and five year average injections.  Still while there is not a lot of concern at this point, gas injections are going to need to outperform last year given that the current inventory is -359 BCF lower this year.   With today’s EIA report gas traded down 4.2 cents for the day to finish at $3.186 /Dth.

Today’s market was reflected in the prices of the strips.  The 2017 summer strip was down 3.3 cents for the week to $3.241 while the 2017/18 winter strip faded 4.7 cents week-on-week to $3.481 /Dth.  The 2018 calendar strip lost 4.2 cents this week to trade at $3.078 /Dth while the 2019 calendar strip dropped 4.4 cents to $2.878 /Dth.

Josh and I will be in Houston meeting with gas producers next week so hopefully we will have some fresh words of wisdom.  🙂

Have a great weekend!

 

Blake

 


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