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Energy Market Update: August 21, 2018

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Today, we’re looking at natural gas demand and its effect on the Henry Hub. There are new demand factors both dependent and independent of weather; we’ll look at both types and then check in on prices to see how the markets have responded.

Tune in to the video below.

Non-weather related natural gas demand

Measured in bcf per day, natural gas exports to Mexico are at a record high. A record amount of gas is flowing across the border to Mexico, but this amount is still about half of capacity, which means that there is still significant room for growth. We could see this figure continue to rise, depending on when additional pipeline projects come online (which, given the poor transparency of such projects in Mexico, may prove difficult to predict).

LNG (liquefied natural gas) feedgas also set a record high earlier this year. This type of gas export consists of natural gas which is compressed and shipped out of the country, either through Cheniere’s Sabine Pass facility on the Texas-Louisiana border or via Dominion’s Cove Point export terminal in Maryland. These are both new facilities and are expected to boost export capacity through the next two years.

Given the capacity for increased gas exports, both in Mexico and abroad, we may see even higher figures over the next two years.

Weather-related natural gas demand

It’s been a hot summer, and unsurprisingly we have another record: 2018’s summer power burn (the period from June through August) surpassed the prior record for demand set in 2016. Furthermore, we are seeing higher baseline demand, even during low-demand periods, of over 20 bcf per day.

Winter industrial demand is at a 10-year high. Similarly to the power burn figures, industrial demand is increasing both on-peak and at baseline during low-demand periods.

A further record was set this year by residential and commercial demand. 2018 saw an all-time high in demand during peak times. Baseline, off-peak prices remain low, but because there is a large inventory of new homes and facilities using natural gas, demand during peak times will likely continue to surge.

What does this mean for prices?

Looking at the Henry Hub price from a month-to-month perspective, we should note that 2016 forecasts for this time were lower in price. However, looking at current forecasts out to 2030, prices are expected to rise much more slowly than the 2016 forecasts predicted. In other words, demand factors (both weather-related and non-weather-related) have not affected the market as much as they could have.

Finally, we are seeing an apparent price floor for natural gas at $2.50 USD/MMBtu during low-demand season. This could be in response to the demand factors we discussed today --  let’s keep an eye on that moving forward.

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Posted: August 21, 2018