Factors Driving the Short-Term and Long-Term Energy Markets

Bear Drivers: Factors Driving the Market Down 

Short Term:                                                                                                                                                                                                                                                   

  • Natural gas production is averaging 81.4 Bcf/day
  • Mild temperatures expected in the coming weeks
  • Average Natural Gas supply totals increased around 1% week over week

Long Term

  • FERC approves 5 new natural gas pipelines and pipeline expansion projects in the Northeast in October 2017 
  • Due to mild weather, U.S power generation in 2017 is expected to be down 1.2% from 2016
  • Pennsylvania natural gas production is up 25% to 15 Bcf/d vs. last year raising the region to 19% of total U.S natural gas production 
Bull Drivers: Factors Driving the Market Up

Short Term:

  • Natural gas injections to storage are slowing as working gas is estimated to end up below the five-year average levels by end of season
  • Natural gas consumption increased 14% 
  • LNG exports continue to increase 

Long Term:

  • Winter is expected to be colder than 2016/2017
  • Henry Hub spot price expected to increase to $3.29/MMBtu in 2018
  • DOE approves first U.S floating LNG export facility expected to come on line in 2021 or 2022 
Conclusion:
  • Based on current electricity pricing which continue to hold at 4-5 year lows, our recommendation would be to secure long term contracts, and even secure long term contracts with starts as far out as 2020. 
  • Based on current natural gas pricing which has held strong over the last 12 months and with significant increases in natural gas exports and generation, now would be the time to consider locking in long term gas contracts even with starts as far out as 2019/2020. 

 

Dennis McCarthy, Sourcing Manager, Fairchild Electronics

“Gentlemen, you are to be commended. I must confess I had my doubts because of the crazy negative basis points and the Marcellus Gas developments but you’ve done it again. Thank you from all us in PA for a job well done!”

Dennis McCarthy, Sourcing Manager, Fairchild Electronics

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