Bulls and Bears grappling for control with Bears holding the lead
The Driving Factors
NYMEX
NYMEX rallied this past Tuesday with news of Freeport LNG partially opening back up, but the rally didn’t last long at all. The folks over at ICAP believe we could see a continued NYMEX slide down to the $2.15 - $2.00 range. On the flip side, the bulls could find traction with support in the $2.60 - $2.75 range if demand increases while supply drops.
BASIS
Line EPNG L2000 came back online this week after being off for 16 months, and will ramp up to full capacity, adding 600,000MMBtu/D to West capacity over the next few weeks. The same day SoCal Gas Co took L3000 offline for approximately 10 days for scheduled maintenance, taking away 800,000MMBtu/D. Basis prices for the West are up a few dollars each but this should be temporary.
RIG COUNT
This week’s rig count shows a drop in gas rigs by 1, down to 151 active gas rigs. The oil rig count fell by 2 for a total of 607 active oil rigs.
PRODUCTION
With natgas prices being as low as they are right now, it’s no wonder that there is talk of cutting production. Daily production last week sat around 99Bcf, down from the record setting 103Bcf prior to this week. That’s not to say that NYMEX natural gas prices will jump up just because production decreases, but prices will likely increase as soon as demand increases back to a normal level, at a level that is above normal demand, especially if we have capacity restraints. We’re in a sweet spot right now but it won’t last forever.
DEMAND
Fossil fuels continue to be relied upon for our world to meet our ever-growing energy demand. “The fact that fossil fuels’ share in the global energy mix reduced by just 0.1% from 2009 to 2019 is a clear indication of this.” Insider Monkey, 2-12-23. Demand in the C&I sector isn’t going to drop any time soon and we need to keep that in mind when thinking about forward positions and prices.
CRUDE
The active rig count continues to increase, for now.
NUCLEAR
Nuclear fission is the second most energy-dense source. The most energy-dense source is nuclear fusion. And as much as the US likes to push hydro/solar/wind, the US is ranked #1 in the world for nuclear fusion projects in the pipeline, followed by Japan, China, Germany, and Canada holding down the #5 spot. Nuclear and hydrogen, without too many wanting to say it, will most likely lead us to energy dependency. In the meantime, you know which energy sources are currently being relied upon.
RENEWABLES
Hydro/Solar/Wind have become more cost competitive but are still nowhere being energy-dense enough to be a relied upon source of energy in the C&I sector. There is no timeframe set yet as to when RE will be able to meet such a demand in the C&I energy sector.
ITEMS OF INTEREST
The utility companies here in the West, specifically SoCal Gas Co, are proving that they care very little about their rate prayers payers. A great example of this comes
NATURAL GAS PRICING
First of the Month Pricing Average for 2022 PG&E CG = $8.30 SoCal CG = $8.38 12 MO FIXED PRICES ARE BEATING THE ABOVE 2022 AVERGES BY MORE THAN $2.00
Indicative Fixed Prices as of 2/17/2023
All Fixed Prices are up from last week’s natgas update. This upward spike should be short lived with downward pressure by 3-10-23.
STORAGE REPORT
The latest natgas storage report shows a withdrawal of 100Bcf. This is below the guesstimate of 109Bcf. Last year’s withdrawal for this week was 195Bcf. The 5-year average for this week is 166Bcf. That shows us just how mild a winter we have been having this far. We're now 328Bcf higher than this time last year and 183Bcf above the 5-year average of 2,083Bcf. At 2,266Bcf, total working gas is within the 5-year historical range.
WEATHER
The forecast for Feb ’23 calls for below normal temps for the West region while most of the Mid-Con, East, and Southeast regions experience normal to above normal temps. NYMEX doesn’t seem to be too bothered by the cold fronts blowing through the West over the next few weeks as prices remain more bearish than bullish.
Sean Dookie - sdookie@rfpes.com – rfpes.com - @RFPEnergySolutions, - follow on LinkedIn, Sean Dookie
Disclaimer – The opinions expressed herein are those of Sean Dookie and do not reflect the opinions of RFP ES. This material should not be construed as the solicitation of an offer to sell or the solicitation of an offer to buy the products noted in any jurisdiction where such an offer or solicitation would be legal. These materials have been created for a select group of individuals and are intended to be presented with the proper context and guidance. All reference points are believed to be reliable but are not guaranteed as to accuracy. Nor do they purport to be complete - updated information is coming in constantly, and market adjustments take place. No responsibility is assumed with respect to any such statement, or with respect to any expression of opinion contained herein.