Special Feature: Attack on Saudi Arabia Roils Energy Markets
Constellation’s September Energy Market InteI webinar opened with a discussion surrounding the recent attack on Saudi Arabia’s Abqaiq crude oil processing facility, the largest in the world, and some of its implications on energy markets domestically and globally. The attack, which is said to have allegedly originated from either Iran or Yemen via drone or missile, significantly damaged the Abqaiq plant shutting down 5.7 million barrels per day of crude oil output, which provides about 5% of global supply. This represents “the largest oil supply disruption on record,” according to Jason Bordoff, founding director at the Center of Global Energy Policy at Columbia University.
Brent crude, the global oil price marker, jumped 15% on Sept. 16, to $69.02 per barrel, the largest one-day move in more than 30 years. The upward move in crude oil and the prospect of future attacks in the region may be a recipe for volatility and uncertainty in global energy markets. Domestically, higher crude oil prices over the coming months or even years could be a bearish factor in the price of natural gas and electric power. However, the geopolitical nature of a conflict between Saudi Arabia and Iran and the potential for U.S. military involvement in the region could paint a different risk picture for U.S. supplied energy and may come with a security premium attached.
Constellation’s Commodities Management Group (CMG) will continue to monitor the situation and assess the impacts to our customers. There are many moving parts to this story, and the coming weeks may present a clearer picture of the effects on domestic and global energy markets, national security and economic issues as well.
In addition to the news in Saudi, the CMG team touched on weather, production, storage, electric generation and key developments in the gas and power markets during the webinar. Here is a brief recap:
Weather – Late Summer Heat Wave Supports Gas and Power Pricing
The first half of September is the warmest since 1950 across much of the country. This late summer heat wave has given support to natural gas and power markets recently. Prompt-month NYMEX natural gas prices broke above $2.70 per MMbtu, the highest since March. Warmer-than-normal temperatures are forecast for the second half of the month, however, the average temperatures begin to decline quite a bit as the fall season is just around the corner. There is some tropical storm potential in the Gulf of Mexico and Caribbean, not unusual for this time of year.
Natural Gas Storage and Production – Modest Increase to Production, Revised Storage Inventories
The Energy Information Administration upped its natural gas inventory forecast from 3.7 to nearly 3.8 trillion cubic feet (Tcf), by the end of October. This is considered to be more than adequate and has been a key feature in keeping a lid on prices through much of the summer. Natural gas production is averaging slightly above 91 Bcf per day, a record, but still somewhat flat year to date. Production has increased this year but at a very slow rate compared to the past five years.
The CMG team also discussed the new demand becoming available from Mexico pursuant to a major new pipeline project having just come online and the ramp-up of new liquefied natural gas exports in the third and fourth quarter as potentially rebalancing supply and demand, as we head into winter.
Join us in October for our next Energy Market Intel Webinar on October 16, 2019, at 2:00 p.m. ET as we review an in-depth 2019/2020 weather forecast, look at growth in production and storage levels ahead of winter as well as any key developments in the gas and power, including updates on the Saudi attack and its impact on production and exports.