April Energy Market Intel Webinar Recap
Winter is over and the low-demand Spring season is here.
During Constellation’s April Energy Market Intel Webinar, principals from our Commodities Management Group (CMG) provided an exclusive view into what the longer-range forecast looks like and how it might impact power and natural gas markets. They also reviewed the natural gas supply and demand balance ahead of the summer season and addressed the question of rising inflation risks and its potential impact to the energy markets. Here is an overview of the topics discussed:
Late winter-season heating demand reduced natural gas storage inventories below 1.4 Trillion Cubic Feet (Tcf), the lowest in four years. April 2018 is on track to be the 5th coldest since 1950, delaying the start of injections into underground storage. A wider storage deficit to both year-ago levels and the five-year average has been supporting NYMEX prices above $2.50/MMBtu.
Natural gas storage inventories ended the winter season at 1.354 Tcf, the lowest in four years and significantly, more than seven hundred billion cubic feet below the same period last year. Given a storage injection season (April through October is when natural gas is injected into underground storage) of about 200 days, this means more than 3.5 Bcf per day of additional gas will need to go into storage to get inventories back to a level similar to previous years. Generally, lower inventories of gas in storage are a bullish factor on pricing, however, rising natural gas production has kept a lid on such sentiment.
Natural gas production has been rising since mid-year 2017 and has continued upward momentum through 2018. Year-over-year, natural gas production is up nearly 10%. Rising natural gas production has largely kept the market in check through the winter, despite a colder than normal January and a winter that was significantly colder in key population centers than the past several years.
Crude oil prices are at their highest level in four years and gained additional momentum during the past month. A growing optimism for global GDP growth coupled with some geopolitical concerns surrounding the U.S., Syria, and Iran, are largely credited with the most recent upward price momentum. Higher crude oil prices, all other things being equal, tend to favor some amount of downward pressure on natural gas prices. The potential effects of crude oil pricing on natural gas were covered in some level of detail in our last webinar (March 14, 2108).
On the demand side of the equation, the Liquefied Natural Gas (LNG) terminal at Cove Point, Maryland, became fully operational last month sending its first cargo to the United Kingdom. It is expected that Cove point will be fully active as we enter the month of June. Cove Point will add nearly three quarters of one Bcf per day to U.S. LNG export capacity, an increase of about 20%, and will likely move average U.S. LNG exports ratably above 4 Bcf per day, or about 5% of total U.S. natural gas production through the second half of 2018.
The April webinar also featured a short discussion on the potential for rising inflation. Since a wave of new volatility hit the U.S. stock market in early February, a renewed discussion surrounding “the potential return of inflation,” has been prominent in various business news outlets. We looked at a simple case for the potential return of inflation and a simple case for why inflation may not be at all likely. We also took a look at the last inflationary cycle in the U.S., the 1970s, and examined the effects of inflation on energy prices.
Don’t forget to join us on Wednesday, May 23rd for our next webinar, as we discuss weather updates, market fundamentals and potential implications of inflation for natural gas, power, crude oil and other commodities as we approach the summer.