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Tag: Natural Gas

Holiday Movies as Natural Gas Fundamentals

Posted on by Getchoice!

By: Chris Amstutz

via GIPHY

The NYMEX natural gas market was not exempt from the craziness of this year. Compared to 2019 price volatility was up 50%, and we recorded the lowest price since 1991 ($1.482 on 6/25). Of the 236 days traded so far this year, 134 of those days traded below the $2.00 mark (the most since the mid-90’s). Even the prompt month January 2021 has fallen like a Griswold ladder, by over $1, to an unthinkable $2.40/MMBtu today. This market has had all the makings of a National Lampoon’s Christmas Vacation. Expectations and plans for natural gas have truly been in “the nuthouse”. It certainly feels like the luck of Clark Griswold is at play. Prices are driven by the fundamentals below and will “light up” our expectations for future years.

National Lampoon’s Christmas Vacation (1989) ranked #55 on the Rotten Tomatoes Christmas List

Natural Gas Dry Production

As the main supply input in the US, this is a classic fundamental that has come to prominence in the last few years. Until this year, natural gas producers had found the strength of “ten grinches plus two”. Production peaked this year in January at a record high 96 Billion Cubic Feet per Day (BCF/D), helping kickstart the oversupply situation. Many have argued there is also an oversupply of How the Grinch Stole Christmas remakes. You’re not “a mean one” to believe the Grinch movies have been in constant decline since the 1960’s original, but don’t be a bearish Grinch, ignoring the fact that natural gas production has fallen to 88 BCF/D today, and is expected to fall further in 2021.

How the Grinch Stole Christmas (1967) ranked #6 on the Rotten Tomatoes Christmas List

Associated Gas from Oil Production

The extraction of natural gas as a byproduct when drilling for oil is a process that has been around since the early 1900’s. As the US has increased oil production in the last 3 years, so has grown the associated gas supply, now up to 25 BCF/D this year. This is the grandparent fundamental of the natural gas world and for this reason we compare to the black and white Miracle on 34th Street (1947) or It’s a Wonderful Life (1946). These movies consistently rank in the top 5 on Christmas movie lists and associated gas production will be a top 5 fundamental to watch in 2021 as oil prices fluctuate.

It’s a Wonderful Life (1946) ranked #1 on the Rotten Tomatoes Christmas List

Liquified Natural Gas (LNG)

The exportation of LNG from the US has been quite the “cotton-headed ninny-muggins” to forecast in 2020, as global demand fell significantly during the pandemic. Nonetheless, this fundamental is relatively new on the scene in the natural gas world and ranks as one of the top yearly demand factors. We compare it Will Ferrell’s Elf ,as it is always in the news/on TV and both have a solid overall presence in their respective fields. LNG exportation has seemingly crossed the tumultuous proverbial “sea of swirly twirly gumdrops”, and has rebounded to 11 BCF/D.

Elf (2003) ranked #31 on the Rotten Tomatoes Christmas List

Power Burn

The burning of natural gas for electricity generation has increased heavily in the last few years as prices have favored it over the use of coal. The confusing name lends no help to those deciding if it is truly a natural gas fundamental or not, but we assure you it is. In the same right, you ARE allowed to question whether or not Die Hard is a Christmas movie. A contentious debate certainly, but there is no debate that the trend of record high Power Burn demand (hitting 47 BCF/D in 2020) won’t be ending any time soon, “Yippie Ki-Yay”.

Die Hard (1988) ranked #14 on the Rotten Tomatoes Christmas List

Natural Gas Storage

Every year utilities across the country store large amounts of natural gas for their customers to use in the winter months, when demand exceeds production. This fundamental has been tracked for over 30 years and is often just different iterations of the same story. Ebenezer Scrooge-like hoarding of gas results in high storage levels (as we have seen in 2020) bringing lower, short-term pricing. This can eventually lead to increased future prices as production slows to regulate the supply gut. Storage can vary year to year just as the movie A Christmas Carol can vary in its remakes. From the Muppets, to Bill Murray, to Looney Toones, to the classic film, this story (and the natural gas fundamental) are timeless and always evolving.

 A Christmas Carol (1957) ranked #29 on the Rotten Tomatoes Christmas List

The Choice Energy Management team would like to wish you a happy holiday season and a much-anticipated happy start to the new year. The full ranking of Rotten Tomatoes Christmas movies can be found here. For more information regarding the energy markets or Choice’s full suite of energy services, please feel free to reach out to a consultant today.

Confidential: Choice Energy Services Retail, LP.

Light at the End of the Tunnel

Posted on by Getchoice!

By: Chris Amstutz

via GIPHY

Opinions are circulating that 2020 has been the worst year ever. Extreme maybe, but the roaring 20’s is certainly off to a rough start for the country (and natural gas price outlooks). The good news? The light at the end of the tunnel is in sight. For two months now we have been in the Tunnel of Terror (as we mentioned in our last blog), and only now are a few trends popping up. COVID-19 restrictions are easing, allowing people to emerge from their Netflix/Hulu/HBO binging solitude. This is allowing for a clearer outlook on the fundamentals affecting the NYMEX natural gas market. Are we out of the tunnel of forecasting despair yet? Certainly not. Expect more records to be broken before we reach the end of this madness. More good news? We are nearing an advantageous time to save your business money through the strategic management of your energy procurement.

Looking Back into the Darkness

Stay at home orders may be boring, but following the markets has not been. The volatility witnessed in the last 2 months has been unlike anything seen in our lifetimes. Here are some of the records that have been broken pertaining to the natural gas market:

  • Record low daily temperatures for half of the U.S. on May 9th.
  • The WTI May oil contract went negative on April 20th for a -$37.63 settlement.
  • Unemployment sits at 14% nationally, and the Fed Chairman warns this could rise to 25%.
  • Several projections have the natural gas storage level breaking the record high of 4,047 billion cubic feet (BCF) by November.
  • The streak of 76 trading days of NYMEX prompt under $2 was broken on May 5th but has since fallen back below the mark.

Looking Forward for the Light

The glimmer of freedom and summer bliss has been revealed to many recently. As we learn more about COVID-19, the implications ripple through energy market fundamentals and ultimately prices. The dark tunnel of uncertainty has become a little brighter. Here are some ongoing trends we expect will continue to affect the natural gas market:

  • All but 5 states (NY, NJ, CT, MI and MA) have begun some sort of reopening measure. It may be 2 more weeks until any state has fully opened all businesses.
  • Non-weather demand for natural gas has fallen. Industrial demand is expected to slowly recover as the economy picks up, but it may not be until 2021 for exports to recover. Liquified Natural Gas exportation (LNG) has led the way with only 60% of capacity utilized in May, falling to potentially 45% by end of summer.
  • Production could fall as much as 5% in 2020. This is a substantial drop but has recently been less than the fall in demand we have seen, maintaining the short-term bearish market. A recovery in oil prices could keep this loss of production from being fully realized.

The adage of “volatility creates opportunity” is certainly at play here. Any business that can look forward for the light at the end of this virus-induced tunnel will benefit from an experienced energy market consultant. The twists and turns we have seen recently have been extreme and gone are the days of passive procurement management. Through Choice Energy Management’s analysis of market fundamentals and historical trends, even the darkest of tunnels can be illuminated. While uncertainty still abounds in the NYMEX Natural Gas Market, feel free to reach out to a Choice! consultant today regarding your business’s energy management options.

Confidential: Choice Energy Services Retail, LP.

Energy Markets in the Tunnel of Terror

Posted on by Getchoice!

“There’s no earthly way of knowing.. which direction we are going.. there’s no knowing where we’re rowing.. or which way the river’s flowing”

Oh how fast everything can change in our new modern world! A month ago we were innocently dissecting theoretical outcomes of political energy agendas, and now we are quarantined in our homes listening to others debate whether “the economic cure is worse than the disease”. We digress back to the energy markets, and back to the early 70’s when Gene Wilder in Willy Wonka and the Chocolate Factory was entertaining those going through the first OPEC oil price shock. You cannot help but laugh when watching the famous “Tunnel of Terror” scene thinking in context of what has occurred in 2020 so far. Energy markets have experienced a supply shock from OPEC, a demand shock from COVID-19, a wealth shock in the stock market, AND a credit shock from bank lending, all in a matter of 4 weeks. The fact is that any one of these shocks is capable of sending a well-informed business into chaos, but all 4 together is ludicrous. So before you throw your hands in the air and irrationally exit the psychedelic, tunnel-of-terror riverboat, lets dissect this situation, and ride this crazy boat to the golden geese on the other side.

WTI Crude

  • Down 63% since 2/20/20 to $20.
  • OPEC, Russia and US producers all continue maximal oil production, even as oil demand has dropped an estimated 20% year over year due to COVID-19.
  • Diplomatic and pandemic news will be the only short-term catalyst for this market. Watch for the US to first make a diplomatic and then a potentially stronger economic approach with Saudi Arabia, as many lawmakers have already accused them of “Economic warfare”.

Economy

  • Dow Jones down 25% since 2/20/20 to 22,000.
  • Congress has approved a stimulus package and this will look to curb economic uncertainty fears.
  • The Federal Reserve has taken unprecedented action to ensure credit doesn’t tighten, even as board members predict “scary” outcomes of 30% unemployment.

NYMEX Natural Gas

  • NYMEX Prompt down 15% to inflation adjusted all time low of $1.634.
  • The May contract could fall further if we see a decrease in quarantine-driven commercial demand and continued below average weather-driven demand.
  • The calendar ’21 strip price has risen 15 cents off the bottom, potentially due to decreased production outlooks.

Power Prices

  • Summer 2020 ISO Power Prices are down 20-30% nationwide.
  • New York is reporting power demand 5% below 2019 weather-adjusted levels.
  • ERCOT has seen no clear impacts to demand at this time but the ’20 summer strip in Texas is coming down from all-time highs.

Energy Sector Health

  • The Dallas Federal Reserve energy sector vitality survey hit its lowest score recorded in its 4-year history.
  • Optimism is low from energy producers at current price levels.
  • If the current situation persists longer than 4-6 months, we could see producers go bankrupt.  This disruption would send current supply levels lower for Oil and Natural Gas.

Policy Update

  • As of last declaration from President Trump, COVID-19 containment protocol is recommended to stay in place through April 30, meaning demand destruction and general uncertainty could continue for another month.

If Choice! Energy Management had floated the idea of all of these events occurring simultaneously two months ago, we would have been branded crazier than the idea of a magic chocolate factory. There is no historical event to compare this situation to and the energy markets were already in uncharted waters. For this reason, it could be an opportunistic time for businesses with the means to capitalize on future market positions. A black swan type event, like what we have seen this past month, reinforces the idea of needing a sound energy risk management action plan in place for a business. The gamble is too large. While current events have depressed commodity prices (generally good for businesses), it is no longer impossible to imagine a scenario where prices rise and cost businesses billions in unprotected energy costs. Balancing a businesses risk tolerance with sound fundamental and technical knowledge of energy markets should be the golden goose your business seeks to attain. At Choice! Energy Management we pride ourselves on leading our clients through all energy landscapes (no matter how ominous). Please feel free to reach out for energy help during these trying times, and above all else, look out for each other on this crazy river boat ride we call life.

Confidential: Choice Energy Services Retail, LP.