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Weekly Energy Market Update: October 20, 2014

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Below is the Direct Energy Business Weekly Energy Market Update for October 20, 2014. We embedded this video right into the blog post, so you don’t have to leave this page to view it. The written summary is still below too. 

The following is a summary of last week’s market activity and the market outlook.

 

Just like last year, gas pipeline expansions are coming into service in late October/early November allowing more production to reach the market, all while weather-driven demand is at a low ebb.

As a result, winter gas commodity, basis, and power prices (which are highly correlated with natural gas) outside the constrained New England and NYC regions have again declined going into the late fall as higher production and storage levels have lowered weather-driven demand premiums.

Will the declines continue? Unfortunately, we must state the obvious, the answer will be heavily dependent on the weather-driven demand or a lack thereof. Forecasts are calling for a colder than normal November 2014 - March 2015 period, but evidence in the near-term forecasts is lacking.

Natural Gas Commodity
• November futures breach price support ($3.723) seen since July, but holds above technical support at $3.655 (61.8% Fibonacci retracement level $1.902 low/$6.493 high range)
• Domestic natural gas production set a new record of 70.5 Bcf/day on October 19 (Bentek Energy LLC)
• NYMEX natural gas futures prices 45 to 15 cents lower year-over-year through 2019
• U.S. storage weeks ended 10/17 – 10/31 forecasted to be ~ 90+ bcf per week vs. 57 bcf last year, which could reduce the year-over-year deficit by over 100 bcf to ~225 bcf

Natural Gas Basis / Weather
• Significant 2014-15 winter gas basis declines in the Northeast and Mid-Atlantic regions over the past two weeks, but prices remain higher year-over-year
• November 1 gas pipeline expansions that can access Utica/Marcellus to increase Northeast gas production, impact basis spreads
• In many Northeast regions, negative basis brings delivered natural gas costs near coal parity next summer
• Early November and December forecasts call for temperatures warmer than last year but near 10-year and 30-year normal

Power Markets
• Electricity energy prices decline with natural gas commodity/basis in most non-constrained regions
• EPA MATS (Mercury and Air Toxics Standards) Rules to be effective April 2015 could prompt more coal plant retirements and increase gas-fired generation above what has been announced

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Posted: October 20, 2014

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