The Kobiona Monitor
Volume 2 / Number 4
May 20, 2020
Kobiona’s leadership has enlisted the help of our Market Intelligence Desk to craft this monthly publication to share major market dynamics impacting future power and gas prices. As every client’s situation is unique, we encourage you to review market movements with us to decide whether any action on your part could serve to lower your future costs or avoid known, coming increases.
It’s official. As of this writing, Wednesday, May 20th, natural gas has spent its longest stretch in history under $2/MMBTU – 87 trading days. We’d say “enjoyed,” but the run is only enjoyable for buyers – not producers who continue to shut down. The run was not continuous, however. A rally that started on April 24th took gas on an upward climb that peaked at $2.13 on May 5th after a pipeline explosion the day before. But after two strong injections and very healthy storage picture going into what will likely be a summer of lower-than-typical demand across the country, gas prices have moderated. Looking back, power futures seem to have hit their low so far for the year around March 24th, and are up about 3-5% from that date, dependent on region and future term.
Storage is the one thing keeping pricing at bay, for now. But if large parts of the U.S. start to re-open, demand increases fairly quickly and we get some early heat – look for gas to crest $2/MMBTU again before mid-July. Gas under $2 is a rarity, historically speaking. Most analysts are looking for gas to be tasing between $2.80-$3.20 in Q4.
Healthy Storage Dominates the Short-Term Picture
According to the EIA in its May 14th report, as of May 8th the U.S. was sitting on natural gas inventories of 2,422 BCF, 799 BCF above the same week last year and 413 BCF (20.6%) above the 5-year average of 2,009. This ongoing oversupplied status is the main reason commodity futures have remained priced at severely-discounted levels despite widespread shutdowns in production.
Compare the vertical, dotted line now (right) and a year ago (left) relative to the blue line (current inventories). A year ago stocks had just crept back into the 5-year range; now they are close to the top of the 5-year range.
Prompt Month Gas Prices
Largely driven by a lack of domestic demand — as well little-to-no global LNG demand — buyers have witnessed the longest stretch in history of natural gas under $2/MMBTu — 87 trading days. These pretty dramatic price swings are common to see at the very bottom of the market. There is strong resistance at the bottom and you can see prices do not linger there, but rather dart up. We’re seeing the same intraday price movement we typically see during deep winter cold spells.
Data Source: Nasdaq
Drop Off in Rig Counts Should Be Concerning
Those who study the chart below should quickly pick out one market trend: oil and gas rigs shutting down wasn’t just a COVID problem. Late 2018/early 2019 was the hay day of drilling with counts dwindling week to week throughout 2019. COVID took producers off a cliff, but they were being driven to the brink all through 2019 on low prices.
Data Source: Baker Hughes
Global Gas Glut LNG Exports
This New York Times piece from May 11th paints an interesting picture of gas inventories at a global level. With gas inventories high at so many countries around the world, similar to what we’re seeing domestically, lots of LNG projects and investments are on hold and tankers are sitting off coasts with no buyers for fuel. At present, this lack of demand is keeping even more gas from being sold offshore.
Read more: https://www.nytimes.com/2020/05/11/business/energy-environment/natural-gas-exports-coronavirus.html