Natural Gas
effect on natural gas demand. The length of the recession will have a
powerful impact on how long natural gas prices remain depressed.
Industrial demand has been down 2.0 Bcf/day (11%) over the most
recent 5 months of available data (Jul-Nov08) according to the EIA.
Estimates of the length of the recession are extremely varied. Pick an
estimated end date, and you can find someone whose analysis
matches.
Another item that is confusing the market is production volume and the rig count. Typically, the rig count was tied fairly closely to production. The number of rigs, times the average production from a rig, gave you a fair estimate of production. But in recent years, with better equipment and more varied types of rigs, this correlation is in doubt.
Now with drilling in shale gas formations, shallow gas, deep gas, Gulf of Mexico gas, coalbed methane gas and others, data is not available of the exact makeup of the types of rigs that are either being added or removed from production. While we know the overall rig count in the U.S. is down dramatically since September 2008, it is unclear what type of rigs these are. Since different formations have different decline rates (the rate at which production drops from year to year), it is difficult to know exactly the magnitude that the recent reduction in drilling will have on production.
Last week the EIA reported a 195 Bcf drop in storage inventories (in the U.S), leaving total natural gas storage at 2.179 Tcf, 2.83 percent ahead of last year and 0.8 percent ahead of the five -year average for the same period. Looking specifically into the 3 regions that make sure the overall storage portfolio, the East Region is 9.8 % below the five-year average for the same time period, the Producing Region is 11.8 % ahead of the five-year average and the Western Consuming is 19.3 % ahead of the five-year average.
Term prices right now for the balance of this year are very attractive.
Ontario Power
Average ON PEAK Price for Feb: 5.7 cents / kWh
ON PEAK Hours over 7.0 cents: 21 % in Feb.
22 % year to date
Highest price in the past week: 12 cents / kWh on Feb 3rd
January who lesale numbers were fairly low considering the icy temperatures, but power pricing is also showing the effects of lower demand due to the economic slowdown and the low price of natural gas. The average price (HOEP) for January was 5.3 cents/kWh. February has begun with somewhat warmer days and also very low HOEP.
It is interesting to observe trends in the wholesale power market in order to improve forecasting of price and demand, but one must be mindful of the normal volatility of data masking itself as a “trend”.
Note that in this particular week in January, there does not seem to be much correlation between demand for power and the price of it. Average demand was steadily above 20,000 MW for 3 days in a row in this graph, but price did not jump until the third day.
Observe here that the correlation is much stronger between the demand and price.
This underscores the difficulty in forecasting where price will be in a diverse market for a given demand. Even though the relationship looks good it isn’t always so simple to see
an enduring trend.
Please contact your Client Services representative to discuss anything specific to your risk tolerance and energy cost goals.