Natural Gas Storage
Solid Storage Levels Continue to Drive Prices DownEIA’s latest Storage Report showed that stocks were 489 BCF higher than the same period last year; representing a 47% improvement. While storage levels dipped below the 5-year average by 13% (225 BCF), working gas is still within the 5-year historic range. As a result of today’s EIS report, April NYMEX natural gas contracts traded at $2.86/MMBTU; a 4¢ dip in prices as a result of the news.
The East and Producing regions have storage levels 21% and 19%, respectively, below the 5-year average, while the West region enjoys a surplus of 24% above the 5-year average. With milder weather predicted throughout March, continued strong storage reports are expected. As the withdrawal season ends in the next few weeks, we enter the injection season in a much stronger position than last year. In 2014, we entered the injection season at a low point of 822 Bcf and played catch-up all summer long.
Weather Forecast: Winter's Worst is Behind Us
Both the 30-day and 90-day outlooks show normal or above normal temperatures for almost the entire US. The West is predicted to see above normal temperatures. With mild temperatures ahead and solid gas in storage, we should expect to see energy prices remain low and stable.
Natural Gas prices continue to outperform the last two years. The NYMEX March settlement price of $2.894 was 40% below the March 2014 settlement price of $4.855/MMBTU. Currently, April settlement contracts are trading even lower at $2.80/MMBTU. The drop in natural gas prices is occurring as crude oil is slightly up. Overall, U.S. demand for natural gas is 74.3 Bcf/day; up by 3.2 Bcf/day. The increase in demand is attributed to the cold weather in the Northeast. Natural gas supply remains steady at 72.1 Bcf/day.
The current 12-month strip price is at $3/MMBTU. That’s a great marker for everyone to evaluate their current contract prices.
Electricity Outlook for the Summer Looks Positive
Electricity markets look favorable heading into the summer air conditioning season. On average, U.S. generation will grow 1.3% in 2015. U.S. electricity consumption is predicted to grow at a similar rate of 1.37% in 2015; residential (0.7%), commercial (1.6%) and industrial (1.9%).
Generation growth, coupled with strong natural gas storage levels, positions us to withstand any weather challenges this summer. Our primary concerns are the upcoming hurricane season and any long-term generation outages.
Regulatory Opportunities: CA Deregulation Legislation
In February, California Senator Bob Hertzberg introduced a bill (SB 286) that would allow all business customers to partake in electric choice. The bill would require the PUC to eliminate the existing caps on non-residential direct access load over a phase-in period not to exceed three years, with all business customers able to participate in electric choice at the end of the period. The phase-in period shall commence by July 1, 2016. The bill has the backing of many companies and suppliers who have written to support the legislation.
This bill is a significant regulatory change and will have a positive impact on all business customers currently not permitted to receive low-cost electricity in California. The bill is progressing through the process and has been referred to the Senate Energy, Utilities and Communications Committee for review. AUM will keep everyone updated as this bill progresses.
We Survived Another Winter
While many in the Northeast are still shoveling snow, overall we have made it through another winter and are in a strong position going into summer. Natural gas storage levels are nearly 50% higher going into summer than last year and pricing continues to remain low. Currently, power generation looks to remain on pace to match usage growth. Overall, the energy markets look stable and low prices should continue.