September 2018 Market Intel Webinar Recap

Article by Constellation

During Constellation’s September Energy Market Intel webinar, principals from our Commodities Management Group (CMG) recapped summer weather, forecasted the upcoming winter weather and discussed its implications on gas storage. They also discussed the demand for natural gas liquids outside of the United States, especially in Asia. The following are some key takeaways from this month’s webinar:

Weather Update

Meteorologist Andrew Durante gave us a recap of this summer, which came in as the fourth warmest on record on a national level, with Texas and California having very warm summers but just below previous record years. An early look at winter shows a potential warm start and then a flip to colder temperatures in the January/February timeframe. The key weather drivers this winter will be the strength of El Niño and atmospheric blocking over Greenland that could buckle the jet stream allowing cold air to flow south from Canada.

Market Fundamentals

Webinar presenters examined several fundamental trends that will be important heading into the winter of 2018/2019. As the last month of the natural gas injection season comes to an end, there remains a significant and persistent storage deficit despite record gas production. The market is beginning to take notice of what could be the lowest level of gas to start the winter heating season, since 2005. Strong winter demand this year could leave storage at a sizeable deficit to year-ago levels in March 2019.

The timing of the arrival of winter weather demand will be important this year due to the storage situation. As of September 14th, storage is at 2.77 Tcf or 19% below year-ago levels and 18% below five-year average levels. The storage deficit has been consistent at these levels for several weeks despite production reaching 83 Bcf/d in September. Offsetting higher production has been the above-average temperatures in September, which have boosted power burns by 5 Bcf/d higher year-over-year, and then exports to Mexico and LNG have added additional demand. If sustained cold weather was to arrive in December, it would begin drawing more gas from a storage situation that will already be tasked. If that were to occur, this would likely put added upward pressure on pricing, for the rest of 2019, if that was to occur.

Propane and Ethane Markets

We examined the propane and ethane markets in the U.S. and their evolution from import dependent a few years ago, to now becoming a fast-growing export market for the United States to meet global demand, primarily in Asia. Propane and ethane, along with other natural gas liquids (NGLs), represent strong incentives for U.S. gas producers due to the higher revenues ($/MMBtu) that NGLs bring to producers vs. “dry” gas methane. The emerging U.S. liquefied natural gas (LNG) export capacity will increasingly be driven by demand in Asia, just as the propane market has experienced over the past few years.

Register today for our October Market Intel Webinar, scheduled for October 17, 2018 at 2 p.m. ET.