About the Energy Outlook
Get the details on pricing trends, weather, storage levels, tariffs and more.
The Energy Outlook is designed to inform you about the current state of the natural gas and electric energy markets. While prices are most important, we offer insights into the drivers of the energy markets and shed some light on how these drivers impact market prices. The primary energy market drivers fall into 2 areas: Fundamentals and Politics.
- Fundamentals are the factors influencing energy supply and demand of electricity and natural gas. Supply factors include power generation, natural gas production (drilling rigs, fracking, and horizontal boring), underground gas storage, and pipeline capacity. Demand factors include consumer usage and weather (driving how much energy is required for heating and air conditioning seasons)
- Politics include changes to the legal and regulatory environment that can cause major moves in energy prices. Political impacts can be new emission standards such as mandated movement to cleaner generation facilities with higher operating costs, new energy taxes or fees, and restrictions on new pipeline or transmission line placement. Political factors can be domestic or international.
Q4 2019 Outlook
A Tale of Two Energy Fundamentals
Natural Gas Storage
Storage Deficit Continues to Grow
NOAA Predicts a Warm Winter
Near-Term Prices Are up, Long-Term Prices Are Flat
New England ISO Sees Reliability Issues
Long-Term Natural Gas Prices Remain Low
Long-Term Natural Gas Prices Remain Attractive
EIA forecasts that U.S. dry natural gas production will average 91.0 billion cubic feet per day (Bcf/d) in 2019, up 7.6 Bcf/d from 2018. EIA expects monthly average natural gas production to grow in late 2019 and then decline slightly during the first quarter of 2020 as the lagged effect of low prices in the second half of 2019 reduces natural gas-directed drilling. However, EIA forecasts that growth will resume in the second quarter of 2020, and natural gas production in 2020 will average 93.2 Bcf/d. Read on for more details on prevailing energy trends.
Natural Gas Storage
Storage Surplus Continues to Grow
The Energy Information Administration (EIA) “Natural Gas Storage Report” shows Working gas in storage was 3,019 Bcf as of Friday, September 6, 2019, according to EIA estimates. This represents a net increase of 78 Bcf from the previous week. Stocks were 393 Bcf higher than last year at this time and 77 Bcf below the five-year average of 3,096 Bcf. At 3,019 Bcf, total working gas is within the five-year historical range.
|Natural Gas Storage Levels (Bcf)|
|Current Storage Level||3,019|
|Storage – One Year Ago||2,626|
|5-Year Average Level||3,096|
The Energy Information Administration (EIA) reported that natural gas production reached an all-time high of 92 Bcf/day last week.
Natural gas production is on pace to smash the record high year of 2018 which averaged a record high of 84 Bcf/day. During the first five months of 2019, natural gas production averaged 89.7 Bcf/day which was 12% higher than the numbers we saw during the same period in 2018.
The market place is very well supplied. Evidence of this abundant supply can be seen in the natural gas storage reports. For example, sixteen of the last eighteen weekly injections have exceeded the five-year averages. The average rate of the injections during this year’s refill season, which runs April 1, 2019 to October 31, 2019, is running 33% above the five-year average.
Record high gas production is easily offsetting record high gas demand for now. That is why energy prices continue to trade at such an attractive level. From June 1, 2019 to August 9, 2019, the forward 12-month price for gas has fallen by 10%, and the forward 12 month price for electricity on the PJM has fallen by 6%.
NOAA Predicts a Warm Winter
The NOAA weather service is predicting a high probability of above average temperatures across the country.
Near-Term Prices Are up, Long-Term Prices Are Flat
The Energy Outlook mainly focuses on natural gas prices because gas prices lead electricity prices. As natural gas prices increase or decrease, electricity prices often follow suit – but hours, days or weeks later. Also, natural gas has a national price established on the NYMEX. Other regional prices and markets exist, but are compared with the NYMEX prices. Electricity is different because the U.S. is divided into 6 regional markets, each setting its own price and having its unique market rules. All six regions tend to move in the same direction, but price volatility and generation vary considerably between regions.
Natural Gas 12-month strip prices have buoyed over the last quarter. Currently 12-month strip prices are at $2.724. Spot prices have reached $2.37/MMBtu; the lowest since May of 2016.
The drone attacks on Saudi Arabia’s oil infrastructure are unprecedented in the history of the global oil industry. These attacks against one of Saudi Arabia’s largest oilfields and the world’s biggest crude processing facility at Abqaiq sidelined a total of 5.7 million barrels per day (BPD) of oil production. This is the largest oil disruption ever. It sidelined the equivalent of the entire shale oil boom; more than the equivalent of all the world’s spare oil production capacity.
But within 24 hours, this mother of all oil infrastructure attacks wasn’t even trending on Twitter. To me this means most people do not appreciate the seriousness of this situation. In fact, I have had people tell me that we are no longer as dependent on Saudi’s oil, therefore this shouldn’t impact us much in the U.S.
Such sentiments are understandable, but they aren’t realistic. It is true that we import a lot less oil from Saudi Arabia. At the beginning of the shale oil boom, we imported about 1.5 million BPD from Saudi Arabia. In 2018, we imported 900,000 BPD from the Kingdom, which represented just under 10% of our crude oil imports.
But the oil markets are global, and Saudi is the world’s most important oil exporter. They have long been a stabilizing influence within OPEC, ensuring that the global oil markets are well-supplied. The Saudi oil industry has enjoyed an air of invulnerability with respect to its oil industry. This sort of attack wasn’t supposed to be possible.
That air of invulnerability was shattered as a result of these attacks. This isn’t a disruption of a few hundred thousand barrels a day in some war-torn country. This is millions of barrels per day from one of the most important and stable oil producers in the world.
For now, crude oil inventories will be drawn down. Oil importers will scramble to secure supplies. Prices were certain to jump, and indeed they did. In the first session following the attacks, crude oil prices registered the largest intra-day jump in history. Brent crude opened up nearly 20%, and WTI and Brent have both traded up double-digits for most of the session.
This incident will certainly remind us of the vulnerability of global oil supplies. It will reintroduce a fear premium back into the oil market. The ultimate impact on the price of oil will be determined by how quickly Saudi can return production to normal. If the outage is extended, it’s not out of the question that oil prices make another run at $100 a barrel. We just don’t have any historical experience to draw on, because the world has never seen an outage this large.
Oil producers that can will raise production. U.S. producers will especially benefit from this sudden global interruption. Shares of many U.S. oil companies are trading up double-digits, as they suddenly face the prospects for much better oil prices.
Saudi Arabia has said they expect to get about a third of the lost production back online quickly. But satellite photos show extensive damage to some equipment. It will take weeks or even months to bring production back to normal — assuming everything goes as planned and there aren’t any further attacks.
But make no mistake. Even though most people don’t pay much attention to geopolitical events, when it comes to the oil markets, this is a really big deal. It will affect you.
Source Article: Forbes
Energy markets are complex, with many regional markets. The regional markets may differ from the overall continental energy outlook.
California’s 100% clean energy plan could be at risk
California’s crusade to turn its electricity grid green is running into an increasingly serious obstacle: PG&E Corp.’s bankruptcy. The utility last week won a key court ruling when a bankruptcy judge said federal regulators can’t stop PG&E from unraveling billions of dollars’ worth of pricey contracts to buy electricity from solar and wind farms and other renewable energy sources.
New England ISO Power Constraints
New England’s continued reliance on natural gas-fired generation, coupled with the retirement of coal, oil and nuclear generation, has left it energy-constrained, according to a draft 10-year assessment of the region’s electric grid. The region has faced challenges meeting winter demand, but those constraints could turn into a year-round phenomenon.
New York Must Pursue Power Grid of Future
In order to meet the state’s energy policy goals, more transmission will be needed to deliver renewable power from where it is generated to where it is consumed. Three major transmission projects have been approved by the NYISO and are working their way through permitting processes. Once online, each will significantly expand the grid’s ability to deliver carbon-free electricity produced upstate to downstate load centers. However, more transmission will be needed between upstate and downstate and to deliver electricity from offshore wind.
Texas Heatwave Makes History
Power demand in Texas set a record this past August and real time prices soared to more than $9,000/MWh. Conditions prompted ERCOT to issue an emergency alert, calling on power plants to ramp up and asking end users to conserve. At one point on August 13, the ISO was down to reserves of less than three percent of total demand or less than 2,300 MW. When reserves fall below 1,000 MW, ERCOT will order transmission companies to reduce demand which can result in rotating outages.