Power Energy USA

Welcome to December 1st, and a brand new economic world.

Factory activity in China, France and Germany FELL in November.  Commodity prices are falling fast.  Brent crude oil, which not long ago was trading above $100 per barrel hit $68.54 today.  Other commodity prices are falling in the same manner.

Natural gas in the US which is much more tied to weather than international economic needs is falling too.  Last week I wrote how gas had hit $4.53 on the current contract.  Today already it has broken below $4 and is trading closer to $3.95.  It is possible – 1) with the mild weather we have across the US; and 2) the falling commodity prices worldwide – you may see gas down to $3.70 – $3.75 soon.

This is a GREAT TIME to lock in current low electricity rates now.

If you have been following my notes you have noticed natural gas production in the US is at record highs due to fracking.  For 30 straight weeks the natural gas build up in our storage numbers exceeded the five year average, and this got the amount of gas in storage to a comfortable level for this coming winter heating season.

Two weeks ago we finally missed on the five-year average after seven and a half months with a small draw down of 17 bcf.  Then the big storm hit up north and Buffalo got upwards of seven FEET of lake-affect snow.  Prices for natural gas spiked to $4.53.  They came down a bit, and then spiked back to $4.53.

When it became clear this was not what our total winter would look like, and warmer weather was coming right away behind this storm, prices dropped quickly to $4.006.  Today we had the storage report of the season with the first big draw down due to this specific storm.  Analysts were looking for a draw of 146 bcf but the report showed a draw of 162 bcf, much higher than expected.

Sure enough, the current natural gas contract spiked immediately after release of the report to $4.529, but then finished the day at $4.355, DOWN 5 cents for the day.

My point is as I have stated in my prior notes – natural gas is trading in a range between $4 and $4.53.  Until we see exactly what the winter weather looks like long term we should see no change in this trading range.

Happy Thanksgiving.

Last November we were bouncing along with natural gas prices in the low $3.50 range. We had a comfortable amount of gas in storage, and were anticipating record gas production in 2014.

The table turned on January 6, 2014 when the first of the major cold front hit most of the United States, including Texas. What a surprise as the winter vortex of 2014 clobbered the US and drained natural gas supplies throughout the winter, down to an 11-year low. Prices in February for gas shot up to above $6.50 for the current contract.

Just seven months ago you saw me writing these articles about the “experts” were telling us how we would not reach 3.3 – 3.5 trillion cubic feet of gas in storage by the time this winter’s cold weather would arrive, and they predicted higher gas prices.

The “experts” were wrong. As I have continued to document – week after week during the last seven months the natural gas going into to storage has exceeded the five-year average for the corresponding week. Today’s natural gas storage report shows 3.571 trillion cubic feet in storage, an amount the “experts” said was impossible to reach just seven months ago. Read the rest of this entry »

Even though yesterday’s storage report came in a little lower than the analysts expected we still saw the fourth largest build up in natural gas for any October since they began reporting the numbers at an increase of 94 bcf. This is the 27th week in a row we have exceeded the 5-year average for the corresponding week.

Gas prices have dropped below the significant $3.80 level (currently trading at $3.56), and no rally in pricing or short covering has been able to move the current pricing above $3.80. Gas production remains at record levels while worldwide demand slows. North America’s weather patterns have been very favorable as well with lower high temps and higher low temps for this time of the year. Therefore, less need to use gas and electricity for heating and cooling.

Electricity prices are looking very good now and should remain low until gas spikes up above $3.80, probably during the winter months. Lock in these low rates now.

After notching gains in the prior session on short-covering, the November gas futures contract was down 5 cents to $3.56/MMBtu early Friday as it continues to probe fresh 11-month lows on the spot continuation chart even after the U.S. Energy Information Administration reported Oct. 23 a smaller-than-expected 94-Bcf injection to natural gas storage for the week ended Oct. 17.

On the demand side, most grid operators anticipate firm to higher load at the start of the new workweek Oct. 27 amid returning business-related demand coming off the weekend.

In the South, load in ERCOT will likely see highs at 44,133 MW on Friday and 45,518 MW at the return of the workweek. In the West, California ISO demand should near 30,540 MW on Friday and 27,931 MW on Oct. 25, but should rebound on Oct. 27 as full industrial and commercial demand recovers at the start of the new business week.

Further out, updated midrange weather maps reflect the prevalence of average to above-average temperatures that should usher in limited demand, with lower high temperatures and higher low readings associated with this time of the year expected to generate little in the way of cooling load or space-heating requirements.

The National Weather Service outlook for the six- to 10-day period shows average temperatures lingering over portions of the Northwest and Midwest, accompanied by above-average temperatures elsewhere in the country. Looking ahead to the eight- to 14-day period, average temperatures are seen shifting to be contained over the bulk of the Northwest, much of the Pacific and a tiny patch of the west-north-central U.S., while above-average temperatures are projected to blanket a large portion of the Southwest and nearly the whole of the country’s eastern two-thirds.

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After ending the prior session near unchanged just 0.4 cent down at $3.796/MMBtu, November natural gas futures advanced overnight ahead of the Friday, Oct. 17, open, as traders looked beyond improving storage levels toward the possibility of polar vortex events well into winter that could prompt demand surges and sharp reductions in inventories that are expected to end the
injection season lower than the norm. At last glance, the front-month contract was trading near $3.769/MMBtu, down another 2.7 cents.

While a 94-Bcf injection to storage reported by the U.S. Energy Information Administration for the week ended Oct. 10 has improved inventories to 3,299 Bcf, lingering deficits of 344 Bcf to the year-ago level and 362 Bcf to the five-year average of 3,661 Bcf remain a concern for the market.

The reported addition bested SNL Energy’s final forecast consensus for a 90-Bcf addition to stocks, as well as the 79-Bcf year-ago injection and the 78-Bcf five-year-average addition, but signaled a slower rate of building compared to recent triple-digit gains.

“After record-shattering temperatures and high snow totals last winter in the Northeast, a similar theme will continue into the 2014-2015 season,”AccuWeather meteorologists said. Cold air will surge into the Northeast in late November, but the brunt of the season will hold off until January and February. The polar vortex, the culprit behind several days of below-zero temperatures
last year, could slip down into the region from time to time, delivering blasts of arctic air, according to the outlook.

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I had lunch yesterday with the President of one of the big electricity providers in Texas, and he & I talked extensively about natural gas and electricity prices.  We both commented on the significance of gas at $3.800 because that seems to be the benchmark year after year – it is expensive if above $3.80 and inexpensive below that mark.

Yesterday natural gas closed at $3.800.

This morning’s natural gas storage report brought us more good news and lower prices.  For the 26th consecutive week the amount of natural gas put into storage exceeded our five-year average.  As you will remember from my notes six months ago – the horrible winter weather this year consumed over 3 TRILLION cubic feet of natural gas we had in storage.  There were fears we would not be able to replace that amount through the year and we would face shortages this coming winter, especially if we faced another similar cold winter.  Gas prices had shot up to over $6.

This fall’s weather has been mild, and we are currently seeing weather across the nation about 15 degrees higher than normal so we are not using as much gas as in average years.  Add to that the record production of natural gas this year and we continue to add to the amount of gas in storage at a record pace.

Today’s natural gas storage report showed the 26th consecutive week with the amount of gas going into storage exceeding the five-year average for that corresponding week – another record.  Also, the Wall Street analysts were expecting an increase of 91 bcf and we exceeded that too as 94 bcf of gas was added.  (Last year we added 79 bcf and the 5-year average is 78 bcf.)  Six months ago the analysts were writing we would not be able to rebuild our supply of gas to the 3.5 – 3.6 trillion cubic feet in storage we would need in order to get through another frigid winter as we endured last year.  The amount in storage 6 months ago stood at only 50% of the five-year average.

Today we have 3.299 trillion feet in storage, only 344 bcf below last year’s number and 362 bcf below the 5-year average for this corresponding week.  It appears now the higher temps, lower than expected usage, and the continuing record production due to fracking will extend the record amount of gas being put into storage.  It appears we will catch up with the five-year averages within the next month, and traders of gas are starting to see the “writing on the wall.”  Gas prices dropped this morning, after the report’s release to $3.744 which is a low we have not seen since last September.  This bodes well for lower electricity prices.

We had a pleasant surprise this morning – 112 bcf were added to the natural gas in storage, according to this morning’s report.

Gas has broken back down below $4 to $3.92, and that will help electricity prices go lower for the next few days.

NEW YORK–Natural-gas prices broke below the $4 mark for the first time this week as expectations for a big surplus drive selling for a second-straight session.

Natural gas for November delivery is down 9 cents at $3.93 a million British thermal units on the New York Mercantile Exchange. The move is now the fifth-consecutive time since August that gas has retreated after cresting above $4/mmBtu.

Record production from the unconventional drilling boom keeps capping the market. Traders are awaiting Thursday’s weekly gas storage update from the U.S. Energy Information Administration and expecting it to show an addition 26% larger than the five-year average. Producers added 112 billion cubic feet of gas to stockpiles last week.

A four-day rally that ended Monday likely came from traders trying to find the “appropriate weather risk premium,” fearful that extreme cold could lead to a rush of demand, energy investment bank Tudor, Pickering, Holt & Co. said in a note. Last year’s historically cold winter led to price spikes above $6/mmBtu. MDA Weather Services did forecast on Tuesday a colder-than-normal winter, but one “well short” of last year’s extremes.

We’ll “need that cold weather to deliver to keep prices above $4/mcf,” Tudor said in its note.

When prices dip like this, it could be an opportunity to buy, said Frank Clements, co-owner of Meridian Energy Brokers Inc. outside New York. Some traders are likely to push the price back up with the fear of last winter still fresh in their minds, he said.

“It is early in the season for a winter rally, but I think traders don’t want to get caught not being long … and not participating in a rally that gets to $6 or $7 again,” Mr. Clements said. “That fear factor is starting to creep back into natural gas.”

Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $3.9675/mmBtu, compared with Wednesday’s range of $4.10-$4.16. Cash prices at the Transco Z6 hub in New York last traded at $1.90/mmBtu, compared with Wednesday’s range of $2.22 to $2.28.

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09/29/2014 010:48 SNL: Market response to fall-weather foreshadows possible winter trouble, particularly in the Northeast.

Whether the market can weather the weather is the question that had natural gas futures moving both higher and lower through the week to Sept. 26. In a transition from summer to fall that was less than seamless, the market is eyeing the latest changes to natural gas storage and forecasts for the upcoming winter with uncertainty and caution.

As October options expired, a slightly larger-than-anticipated build to natural gas inventories of 97 Bcf, reported by the U.S. Energy Information Administration on Thursday, Sept. 25, for the week to Sept. 19, only inspired a brief turn to the downside as market participants turned the storage-inspired losses to short-covering gains, driven by the lingering concerns surrounding storage deficits and what weather events the upcoming fall shoulder season and winter heating season will bring.

In natural gas futures, “The weekly storage report engendered a brief sell-off but prices rebounded on expectations of a cold air trough making it down into the US from Canada in mid-October after all,” Kilduff Report publisher John Kilduff said. “There is a cold air mass in Northwestern Canada that is being closely watched, producing anxiety around the market as to whether or not it will impact demand, if it arrives,” Kilduff said in a Sept. 26 note to clients.

“It is almost like watching a spinning top, wondering if and when it will topple over. The price sensitivity to the weather outlook is elevated this time of year, due to the ability of conditions to be incredibly mild, hot, or very cold,” he said.

Natural gas futures spent much of the week to Sept. 26 on the uptick, advancing in the week’s opening session, slipping the following session, then posting gains on both Sept. 24 and Sept. 25 before ending the week on the modest uptick in positioning as the October contract rolled off the board at $3.984/MMBtu, up 1.3 cents on the day and up 14.7 cents on the week.

The November contract moved similarly higher, finding a $3.969/MMBtu to $4.040/MMBtu range before finishing the Sept. 26 trading day up 1.5 cents and above the psychologically important $4/MMBtu mark at $4.029/MMBtu.

“As has been the case over the past two months, the downside proved limited on the idea that prices below the $4.00 mark represent a relative bargain when it comes to valuation, and faith that winter heating demand will be enough to send the market higher,” Citi Futures analyst Tim Evans said.

“To a large extent we agree with that as an intermediate-term assessment. However, we continue to see risk that the large seasonal storage injections of the next few weeks could drive nearby futures to new lows for the cycle,” Evans said.

What will weather do

In terms of weather and its impact on storage, Chris Kostas, senior power and gas analyst at Energy Security Analysis Inc., said he expects natural gas inventories to reach a healthy level ahead of the winter. “Seasonally-soft demand from the power sector, negligible demand from the heating sector, and continued natural-gas production growth (particularly from the Marcellus region) should allow for further gains against the year-over-year storage deficit,” he said in a Weather Service International-ESAI joint forecast.

Further out, an El Nino is likely to keep the hurricane season quiet and could produce a warm but snowy winter across major cooling regions of the country, according to data from the National Weather Service.

As longer-range forecasts suggest the ongoing development of an El Nino for the winter 2014-2015, the Climate Prediction Center webpage that shows U.S. seasonal composites of temperature, precipitation and snowfall shows a tendency for snowier El Nino winters in the Mid-Atlantic and the Northeast.

Early cold provides glimpse to spot-market hot spots

While natural gas futures struggle to breach and hold above $4/MMBtu, amid the impending weather and the impact on natural gas storage on supply and demand expectations, day-ahead market volatility has been observed since the official end-of-summer and start of the fall shoulder season. Weather has been responsible for some price anomalies across the country in day-ahead gas trading that could act as a gauge to where challenges may lie for the upcoming winter season.

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