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Energy Market Update: July 25, 2018

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Natural Gas Storage in the U.S.

Why are natural gas storage levels so low? Today, we take a look at natural gas storage over the last five years. First, we’ll look at year-to-year storage levels and hypothesize why 2018 has been a low year. Then, we’ll look at the markets and see how current trends are affecting prices.

Tune in to the video below.

 

Measured in bcf (Billion Cubic Feet), natural gas storage levels are running low relative to other years. In 2014, storage levels dipped below 1,000 bcf in March – the lowest level we’ve seen in the last five years. This year, levels were not quite as low, but still dropped well below 1,500 bcf in April.

If you live in California or Texas, you know why. This year’s record-breaking heat in some parts of the country has been causing consumers to use more electricity (much of which is generated using natural gas). Overall consumption of natural gas across the country has expanded dramatically as a result.

What does that mean for gas prices this winter and next year? Intercontinental Exchange traders are adjusting expectations in response to dropping storage levels, predicting that storage levels will land at about 3,470 bcf at end-of-season. To put that in perspective, 2014 storage levels (the lowest in five years) peaked well over 3,500 bcf. In other words, peak storage levels for 2018 will end up below even 2014 levels if current trends persist.

Gas Prices, TETCO M3 (Midwestern, Northeastern USA) for 2019, 2020, 2021:

 

Basis market prices:

2019: Low storage levels driving prices up, as expected.

2020: Low storage levels driving prices up, more than expected.

2021: Prices stagnating – unclear what effect storage levels will have.

 

Fixed (NYMEX) market prices:

2019: Stagnating; higher than other years.

2020: Stagnating; moderate price compared to other years.

2021: Decreasing; low price compared to other years.

 

In short: fixed prices are low compared to the basis market. Prices (both basis and NYMEX) will be lower in the future than they are now; however, producers – in the Eastern Pennsylvania dry gas region, for instance – will not necessarily be incentivized by prices this low, which could affect the markets later on.

 

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Posted: July 25, 2018

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