Natural Gas Storage
The Building of Storage Inventories is off to a Strong StartAccording to EIA’s recent Storage Report, there was an injection of 15 Bcf into storage inventories last week. This injection was higher than predicted and much better than last year’s 8 Bcf withdrawal. After the news of the storage injection, May 2015 NYMEX contracts dropped $0.07/MMBTU to $2.47/MMBTU and the 12-month strip contract traded at $2.84.
Regionally, the East Region’s storage level experienced an 18 Bcf withdrawal, which was offset by injections in the Producing and West Regions of 26 and 7 Bcf respectively.
Weather Forecast: Look for Warmer Than Expected Temperatures Through June
For the remainder of the 2nd quarter, temperatures are predicted to be warmer than average. Only Central and Southern Texas is predicted to see higher than normal temps. Warmer temperatures and positive storage injections should result in stable or lower natural gas pricing.
Natural Gas prices continue to drop as a result of mild temperatures, reduced demand and positive storage injections. Natural gas consumption fell 4.3% across all sectors this week, led by residential and commercial usage falling by 8% each. Currently, May settlement contracts are trading down around at $2.50/MMBTU.
The current 12-month strip price is down from last month’s price of $3/MMBTU to $2.84/MMBTU.
NYMEX monthly settlement price for April ($2.59/MMBTU) was 43% below April 2014.
Electricity Outlook for the Summer Looks Positive
Electricity markets continue to look favorable heading into the summer season. Low natural gas prices combined with increased switching to natural gas generation continue to keep electricity prices stable heading into the summer. In 2014, natural gas fueled generation accounted for 27.4% of all U.S. generation. Natural gas’ share of generation is predicted to grow to 30.4% in 2015.
Natural gas generation growth, along with strong natural gas storage levels, should keep electricity prices stable throughout the summer. One concern comes from California. As a result of the severe drought conditions and reduced snowpack, expect lower hydropower output, thus further reducing electric supply in California and possibly driving prices upward.
We are in a Great Position for Stable Pricing this Summer
Natural gas storage is above last year. Lower priced natural gas generation is up over last year, and near-term temperatures are predicted to be at or above normal through June. Everything appears to be aligning for a good summer for energy supply and pricing.