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In This Issue

Potential Upside for Winter Natural Gas Prices, But Downside Risks Ahead, Says Barclays

Energy Department Proposes Change to Electricity Pricing That Could Boost Coal, Nuclear Plants

Natural Gas and Oil Market Update

EIA - Weekly Natural Gas Storage Report

NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price

Tables

NOAA 6 to 10 Day Outlook
weatherweather
Color indicates the probability of forecasted temperatures being above or below a historical average for the period.

 

Market Overviews


Potential Upside for Winter Natural Gas Prices, But Downside Risks Ahead, Says Barclays

Natural Gas Intelligence (NGI) | October 5, 2017

The coming winter may hold promise for the natural gas bulls, but production is tracking to grow by about 19%, or 13 Bcf/d, from 2018 to 2020, leading to a bearish landscape for prices, even as demand rises for exports, power burn and the industrial sectors, according to Barclays Capital.

Analysts led by Nicholas Potter this week issued an updated price forecast for 2018-2020, predicting upside potential relative to the curve in 2018 and 2020 and significant downside risk in 2019.

“Over the medium term, we see risks weighted to the downside for prices,” analysts said. “With the exception of residential/commercial demand (driven by weather), other upside demand surprises are unlikely, given they are infrastructure-driven” for liquefied natural gas (LNG), pipelines to Mexico and industrial growth.

“These growth areas are instead more likely to disappoint expectations than overshoot,” Potter said. Forecasting prices beyond 2018 “is fraught with risks. Given the variability of prices due to weather, it is difficult to precisely quantify the effect of prices on production and vice-versa.”

More producer hedging, long-term takeaway capacity commitments and associated gas growth is leading to production growth becoming” less price sensitive.”

Overall, a high utilization of U.S. LNG facilities could be key to keeping a floor under prices later in the decade.

“If we are correct and U.S. LNG buyers look at short-run marginal costs, U.S. facilities should have high utilization,” said Potter. “If, as others are saying, exports have seasonal variability in utilization, there is further downside risk to our 2019-20 forecasts.”

Could this winter be the last running of the bulls? Over the short term, Barclays is predicting that this winter may exceed gas market expectations.

“We believe that the markets are currently not fully pricing in the probability of a colder than normal winter,” Potter said. “Higher inventory builds following Irma and Harvey, increasing production levels and two mild winters in a row may explain the conservativeness of the current winter curve.”

According to the Natural Gas Supply Association (NGSA), gas demand should reach an all-time high this winter -- but it may not help prices. The NGSA, In its 17th annual winter outlook forecast issued on Wednesday, predicted record gas demand would exceed that of the polar vortex winter of 2013-2014.

However, “surging production, Canadian imports and robust storage inventories of natural gas will ably satisfy demand, resulting in flat pressure on prices compared to last winter,” NGSA said.

AccuWeather on Wednesday also predicted a chilly winter in the Northeast and Mid-Atlantic, with above-normal snowfall versus a year ago. With a weak La Nina predicted to develop this winter, the Northwest and the Rockies also are set to receive an abundance of precipitation.

Assuming normal weather from the previous five-year average for gas-weighted heating degree days, Barclays is forecasting prices to average close to $3.27/MMBtu, which is slightly above the curve.

MDA Weather Services is predicting the period from December-March will be around 5% colder than the five-year normal and 15% colder than last year, “which implies a price of $3.46/MMBtu for the period, based on our model,” Potter said.

“We believe that the discrepancy may be driven by markets not fully discounting the probability of a cold winter, given the recent trend and being wary of faster associated gas production growth because of supportive oil prices,” he said.

Depending on the weather and pipeline start-up delays, balances could be about 2.2 Bcf/d tighter than last year, assuming a normal winter. Storage levels are expected to end in October “just shy of 3.9 Tcf, slightly above the five-year average. This is a bullish level relative to the past two years, but bearish compared with earlier estimates of 3.7 Tcf.”

Assuming a normal winter and that storage levels end in March at 1.7 Tcf, it would be the first March below the five-year average since 2015 (1.45 Tcf), Potter said.

“This should set the stage for U.S. storage inventories to stay at or below the five-year average for most of 2018, a bullish development, given the last two years of storage surplus with which the market has dealt.”

To determine U.S. gas balance forecasts for the medium term, Barclays analysts relied on production modeling by major basins and demand modeling by end-use, based on five-year average weather forecasts. The cash price forecast “is consistent with a price level that stimulates enough power demand to result in a neutral balance over the medium term.”

“We see upside in 2018 pricing relative to the curve as prompt buying interest starts to enter the market,” said Potter. Calendar (Cal) 2018 “will, in our view, be a good example of a calendar year depressed by producer selling that will eventually gain ground as prompt buying interest grows.”

Gas production is set to grow by around 6 Bcf/d year/year (y/y), but some of the weakness in Cal 18 pricing may be overdone.

“At the moment, it is priced at $3.04/MMBtu, while we see fair value given our fundamental outlook at $3.19/MMBtu,” Potter said. “So despite expectations of record y/y production growth, we see normalized storage levels helping buoy prices in 2018 relative to where the curve is currently trading.”

Read More:
http://www.naturalgasintel.com/articles/111956-potential-upside-for-winter-natural-gas-prices-but-downside-risks-ahead-says-barclays


Energy Department Proposes Change to Electricity Pricing That Could Boost Coal, Nuclear Plants

CNBC | October 5, 2017

The U.S. Department of Energy on Friday proposed a rule that would change the way regional power markets price electricity, potentially bolstering ailing coal and nuclear plants.

The rule would require the organizations to factor in certain characteristics of coal-fired and nuclear power generation when they set prices for electricity. The sources, known as baseload, provide steady, uninterrupted power, but have lost market share to natural gas and renewable energy in recent years.

The rise of these energy sources, especially solar and wind power, has raised concerns in some circles about the reliability of U.S. power generation. Energy harvested by wind turbines and solar panels provides intermittent power, meaning it is only available when the wind blows and the sun shines.

Energy Secretary Rick Perry is among those concerned about America's shifting power mix.

"A reliable and resilient electrical grid is critical not only to our national and economic security, but also to the everyday lives of American families," Perry said in a statement. "A diverse mix of power generation resources, including those with on-site reserves, is essential to the reliable delivery of electricity — particularly in times of supply stress such as recent natural disasters."

Environmental groups immediately sought to characterize the proposed rule as a handout to fossil fuel and nuclear interests.

"Rick Perry is trying to slam through an outrageous bailout of the coal and nuclear industries on the backs of American consumers," Kit Kennedy, director of energy and transportation at the Natural Resources Defense Council, said in a statement.

"This radical proposal would lead to higher energy bills for consumers and businesses, as well as dirtier air and increased health problems."

The proposed rule would allow power-generating units to recover certain costs, so long as they provide "essential energy and ancillary reliability services" and keep 90 days of fuel on site, which helps to mitigate supply disruptions. The typical coal-fired facility and nuclear plants would meet those criteria.

Natural gas-fired power plants rely on supplies shipped in by pipeline, and so would not qualify. The Energy Department last month concluded that natural gas's rising share of U.S. electricity generation, fueled by a boom in U.S. gas drilling, is the main cause of coal and nuclear plant retirements. The finding came in a study on grid reliability ordered by Perry.

New natural gas plants are also far cheaper to build than coal-fired and nuclear facilities.

Perry directed the Federal Energy Regulatory Commission to take final action on the proposal in 60 days. FERC, which has authority to regulate interstate transmission and sales of electricity and natural gas, is not required to decide in favor of the rule, but must consider it.

In a recent FERC podcast, the commission's new chairman, Neil Chatterjee, said, "I believe that generation, including our existing coal and nuclear fleet, need to be properly compensated to recognize the value they provide to the system."

The rule fits with the Trump Administration's stated intention to support the coal industry. The White House has systematically dismantled President Barack Obama's actions aimed at reducing the nation's contribution to global warming, including by rolling back regulations on power plant emissions.

President Donald Trump has claimed that the growing use of renewable energy could plunge parts of the United States into darkness, but grid experts refute that claim. They say the bigger threat to the nation's grid comes from its aging transmission and distribution lines, not power plants.

That was the case during Hurricanes Harvey and Irma, which knocked down utility poles and flooded substations in some areas. Still, Perry cited these storms in his letter to FERC.

Energy is bought in wholesale markets in many parts of the United States following a wave of deregulation in the early 2000s. The markets were engineered to prioritize the lowest cost energy. That has pushed subsidized renewable plants, which have little marginal cost after they're built, and cheap natural gas to the front of the line.

The proposed rule is not entirely novel. The PJM-Interconnection, the regional transmission organization that operates the grid and electricity market in 13 states in the eastern U.S., has explored ways to value the attributes of baseload power in its pricing scheme.

Illinois and New York have also allowed nuclear plants to qualify for zero-emissions credits to keep the low-carbon source on the grid as the states attempt to mitigate the effects of climate change. Merchant power generators with nuclear plants in the area lobbied for the policy, while competitors with portfolios weighted to coal and fossil fuel facilities fought it.

Read More:
https://www.cnbc.com/2017/09/29/energy-dept-proposes-power-pricing-that-may-boost-coal-nuclear-plants.html

Natural Gas and Oil Market Update

NYMEX Nov Gas Slides 1.7 Cents Despite Storage Falling Below 5-Year Average

Platts | October 5, 2017

The NYMEX November natural gas futures contract slid 1.7 cents Thursday to settle at $2.93/MMBtu, despite the US Energy Information Administration announcing a smaller-than-expected storage build for last week, which nudged estimated national stocks below the five-year average for the first time since January.

Stocks in the week ended September 29 built by 42 Bcf, the EIA estimated, less than the 47 Bcf consensus estimate of analysts surveyed by S&P Global Platts and well below the 91-Bcf build averaged over the past five years. This put estimated national gas stocks at 3.508 Tcf, 0.2% below the five-year average.

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Oil Gets A Lift From Talk Of An Output-Cut Extension, Storm Supply Risks

Market Watcxh | October 5, 2017

Oil prices finished higher Thursday, buoyed by talk of an extension for a deal to cut output, a bigger-than-expected drop in U.S. crude supplies, and concerns about production as a potential hurricane approaches the Gulf of Mexico. Traders, however, remained concerned over domestic production, which reached its highest level in over two years last week.

On the New York Mercantile Exchange, November West Texas Intermediate crude CLZ7, -0.12% rose 81 cents, or 1.6%, to settle at $50.79 a barrel, following three session declines in a row. December Brent crude LCOZ7, -0.11% the global oil benchmark, rose $1.20, or 2.2%, to end at $57 a barrel on London’s ICE Futures exchange.

EIA - Weekly Natural Gas Storage Report

EIA - Weekly Natural Gas Storage Report

Summary
Working gas in storage was 3,508 Bcf as of Friday, September 29, 2017, according to EIA estimates. This represents a net increase of 42 Bcf from the previous week. Stocks were 161 Bcf less than last year at this time and 8 Bcf below the five-year average of 3,516 Bcf. At 3,508 Bcf, total working gas is within the five-year historical range.

NYMEX Natural Gas Week-to-Week Price Change NYMEX Natural Gas Week-to-Week Price Change

Natural Gas Futures - Five Year Price ($ per mmBtu)

NYMEX Natural Gas Week-to-Week Price Change - Five Yearly Snapshot

Disclaimer: The information contained in these reports is gathered from public and/or internal sources and is presented solely for the convenience of our customers and Newsletter Subscribers. Patriot Energy Group makes no representation or warranty, express or implied as to the accuracy or completeness of the information set forth in this newsletter, and Patriot Energy shall not have any liability to any person or entity resulting from use of this information in any way.
 
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