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As we move out of the natural gas injection season and into the withdrawal season, let’s first take a look back at the energy markets in the month of October and the first few weeks of November. Very mild weather compared to seasonal norms resulted in significantly depressed heating demand nationwide for almost the entirety of October, providing consumers with ample opportunities to take advantage of low shoulder-month pricing. With natural gas dry production numbers regularly setting record highs (or coming close to), and with daily power burns remaining relatively stable, wholesale electricity markets experienced very little volatility and day-over-day price movement remained highly sensitized to any significant adjustments to short-term weather outlooks. All of this resulted in a rare extension of the storage season as we moved into the first two weeks of November.

November has been fairly predictable thus far and the market has largely behaved in similar fashion to what we witnessed in October. Short-term weather sensitivity remains the driving force in projected natural gas and power demand and in turn, corresponding price movement. Given that the first withdrawal of the season came in mostly where expected (-18 Bcf), there was very little price movement as production remains stable and demand has been relatively flat nationwide, though a cold snap in the upper Midwest and Northeast held any downside movement in check. At this point, the longer term bearish view is beginning to seem most viable, but it is important to note that LNG exports will continue to reduce available supply – within a few weeks, the U.S. will open its second LNG export station, currently in the final stages of construction in Cove Point, Maryland. With increasing global demand for LNG and the relatively high margins enjoyed on exports out of Sabine Pass, the expectation is that more and more terminals will be approved for constructions in 2018 and beyond.

Moving forward, it will be important to keep an eye on pending regulatory activity and a “show cause” issued by FERC to ISOs to incorporate mechanisms within their tariffs to keep at-risk coal and nuclear generations online. While speculative for the time being, markets have already reacted to this with 2%-5% increases in wholesale power prices – capacity markets are expected to be adjusted similarly.

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