Volume 12, Issue 17 | May 9, 2014

Editor's Note

One Goes Up and One Goes Down.

Week in Review for May 2 - May 8, 2014

Analysts are having a difficult time predicting the direction of energy prices. For this seven day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 3% closing at $0.455/therm, while the 12-month average price for peak power on the PJM  fell less than 1%. However, consider for a moment that since March 4, 2014 natural gas prices have dropped 2.2%. Meanwhile, over on the electricity side prices have risen 6%.

Why are natural gas prices sliding downward as electricity prices are creeping up? Natural gas and electricity prices almost always travel in the same direction. What does this say about where energy prices will go from here? The Bulls are focused on the natural gas storage deficit and are calling for prices to move upward.  In the other corner, the Bears are betting on lower prices, pointing to current natural gas production numbers and the moderate weather.

We are dealing with a huge storage deficit. The natural gas storage fields are operating at an 11-year low and currently sit 48% below the five-year average. The Bulls believe that if we have a hot summer, and natural gas is directed to the power plants instead of the storage fields, that we could see more upward pressure on energy prices.

On the other hand, the Bears point out the fact that natural gas production in 2013 hit an all-time record high. The shale gas phenomenon is responsible for these record high production numbers we enjoyed in 2013. The Bears believe that  the industry can refill the storage fields by November 1st if we have a normal summer. If they are correct, and the storage deficit is significantly reduced by the end of summer, we may see some downward pressure on energy prices.

The future direction of energy prices is influenced by many variables. But for now, the biggest variable to watch is the Summer weather.


Natural Gas Fundamentals

Natural Gas Storage Update: Storages Still 48% Below Average. Data Released May 8, 2014

 

 

Current Week

Last Week 

Net Change 

This Week Last Year 

Prior 5 Year Average 

 

Stocks (Bcf) 

Stocks (Bcf) 

(Bcf) 

Stocks (Bcf) 

Average (Bcf) 

Total Lower 48 

1,055

981

74

1,852

2,037

The injection season runs from April 1st - October 31st. The first injection of the season was only 4 Bcf. The second injection reported on April 11th was 24 Bcf, the third injection was 49 Bcf, and the fourth injection was 82 Bcf, finally above-average. For this week's report we saw an injection of 74 Bcf which was our second above-average injection of the season.

Although this week's injection was 2.7% larger than the five-year average injection of 74 Bcf, we are still dealing with a huge storage deficit. Storages are operating at an eleven-year low. The natural gas storage fields are 43% below last year's levels and 48% below the five-year average. 

In order to re-fill the storages to a respectable level of 3,400 Bcf  prior to November 1st, the industry will need to inject an average of at least 80 Bcf per week. Analysts fear that it will be difficult to refill the storages  by the November 1 deadline. 

If we have a hot summer and natural gas is directed to the power plants instead of the storage fields,  the storage deficit may spook the markets.  If we don't  minimize the storage deficit in the next few months, we  could see more upward pressure on energy prices.


Rig Count for Natural Gas

Weekly Drilling Rig Update: The active U.S. gas rotary rig count for natural gas released by Baker and Hughes for the week ending May 2, 2014 was 323 rigs. This number remains unchanged from the previous week. The count is 31 rigs lower than the count reported this same week last year. We are 57% below the five-year average gas rig count of 750.


NYMEX Natural Gas Monthly Settlements for the Past 12 Months

(Price per therm at the well-head)

This was the closing price of gas at the well head for each of the past 12 months. The closing price for a month occurs on the 3rd business day prior to the start of the month. 

June-13

$0.4148

Oct-13

$0.3498

Feb-14

$0.5557

July-13

$0.3707

Nov-13

$0.3497

Mar-14

$0.4855

Aug-13

$0.3459

Dec-13

$0.3818

Apr-14

$0.4584

Sept-13

$0.3567

Jan-14

$0.4407

May-14

$0.4795


NYMEX Values per Month for the Forward 12 Months

Thursday, May 8, 2014

(NYMEX - Price per therm at the Henry Hub well-head)

June-14

$0.4572

Nov-14

$0.4599

Apr-15

$0.4158

July-14

$0.4583

Dec-14

$0.4703

May-15

$0.4130

Aug-14

$0.4579

Jan-15

$0.4771

12-month avg.

$0.4550

Sept-14

$0.4553

Feb-15

$0.4745

11/2014-3/2015

$0.46924

Oct-14

$0.4560

Mar-15

$0.4644

Crude Oil

$100/barrel 


NYMEX Graph for Natural Gas - 12 Month Average Price per Therm at the Louisiana Well-Head

(Excludes Interstate Transportation)



PJM Electricity

PJM Graph for Electricity - 12 Month Average Peak Power Price

On-Peak 1 Year Forward Price



Weather

Local Heating Degree Days*

 
 
 


Heating Degrees Day** 

 

Nov - 13

Dec 13

Jan - 14

Feb- 14

Mar - 14

April - 14

 Actual

  543 

 696

1008 

754

678 

245 

 Normal

 466

 786

899 

728 

568 

270 

 Departure from Normal

 17%

 11%

         12% 

 4%

 20% 

9% 

 Colder

 Warmer

Colder 

Colder 

Colder 

Warmer

**Heating degree days are calculated by comparing the day’s average temperature to a 65 degree baseline. If the day’s average temperature is above 65, there are no heating degree days that day. If the day's average temperature is less than 65 degrees, subtract the average temperature from 65 to find the number of heating degree days for that day.