A Fundamental Look At The Winter Natural Gas Market AWS
A Fundamental Look At The Winter Natural Gas Market Heading Into The Back Half of Winter………………WHERE ARE WE?
Prepared By Our Team…For Our Customers Dr. Jim Duncan
2
Source DOE, Industrial Information
The Internet of Everything
3
Source DOE, Industrial Information February 5, 2018
Global Economy Outlook…Not Too Hot…Not Too Cold
4
Source DOE, Industrial Information February 5, 2018
Global Economic Outlook – Good Chance of Continued Growth
5
Source DOE, Industrial Information February 5, 2018
China…Mega‐Trade & Development Initiative or Geopolitical Strategy?
6
Source DOE, Industrial Information February 5, 2018
Impact of Tax Repatriation How Much Will Be Thrown At Capital Investments?
7
Source DOE, Industrial Information February 5, 2018
Global Economic Outlook
8
Source DOE, Industrial Information February 5, 2018
U.S. Macro Economic Outlook
9
Source DOE, Industrial Information February 5, 2018
Consumer Debt…Problem? $3,827,220,000
2008 $2.6 Billion
10
Source DOE, Industrial Information
U.S. Industrial Plant Spending Forecast – By Region
11
Source DOE, Industrial Information
Global Power Generation Projects 24‐Month Outlook Active Capital & Maintenance Projects
12
Source DOE, Industrial Information
North American Power Industry Grassroot Project Kick‐Off 2018‐2022
13
Source DOE, Industrial Information
Energy Storage 1. Hydrocarbon fuels represent the current best energy storage medium/model. 2. The power stack is the current method of managing incremental demand. 3. The lack of efficient and dependable batteries limits the development of everything from electronics to hybrid vehicles. But new designs are offering better, safer alternatives. 4. Pumped Storage 5. Compressed Air 6. Flywheels 7. Supercapacitors 8. Superconducting Magnetic Energy Storage 9. Batteries 1. Trailer‐sized flow batteries ‐ vanadium redox and zinc‐bromide 2. high‐temperature batteries like sodium‐sulfur 3. Lead‐acid batteries are commonly used for high burst applications 4. Other batteries include metal‐air, lithium‐ion, nickel‐cadmium and lead‐ carbon
14
February 5, 2018
Global Oil & Gas Project Spending Outlook Total Active Projects By Market Region
15
Source DOE, Industrial Information February 5, 2018
S/D Wave Dynamics Will Predict Crude Prices The increased availability of crude oil due to shale has put OPEC in a bind. They no longer control the output of global crude oil and, therefore, the global price. Recently, any cuts in production made by OPEC have been met by US shale producers. This means the crude oil market price will move like a supply/demand controlled sine wave.
16
Source DOE, Industrial Information Source: IEA, EIA, OPEC
Oil & Gas Industry (US and Canada) Project Spending Analysis by Year
17
Source DOE, Industrial Information February 5, 2018
Global Crude Demand Outlook The Imbalance is Shifting
18
Source DOE, Industrial Information
Crude Oil Production – US Major Oil Basins Still a Major Contributor
19
Source DOE, Industrial Information
Onshore Natural Gas Production – US Remains Strong Despite Lower Rig Count
20
Source DOE, Industrial Information
NGL Demand US NGL Demand Growth 2016‐2020
21
Source DOE, Industrial Information
Natural Gas Demand US Natural Gas Cumulative Demand Growth (2016‐2020)
22
Source DOE, Industrial Information
Mexico – Project Spending 24‐Month Outlook
23
Source DOE, Industrial Information
Mexico – New Gas Pipelines Tapping into US Gas
24
Source DOE, Industrial Information
LNG Liquefaction Capacity Build‐Out Is The Spending Over?
25
Source DOE, Industrial Information February 5, 2018
U.S. & Canada Chemical Industry Construction Starts by Probability Factor 2017 vs 2018
26
Source DOE, Industrial Information February 5, 2018
Storage
27
Source DOE, Industrial Information February 5, 2018
Storage
28
Source DOE, Industrial Information February 5, 2018
The 2017 Hurricane Season
29
Source DOE, Industrial Information February 5, 2018
Maximum Temperature Departure from Normal This Past Winter
Winter 2016/2017 proved to be a warm one. Departures from normal averaged +5° F for most of the high‐population areas of the CONUS.
Winter 2016/2017
30
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
Winter Weather Has Been Anything But Consistent
31
Source DOE, Industrial Information February 5, 2018
In summary… 4 top 20 cold winters… 6 top 20 warm winters… 5 middle of the road winters…
Current ENSO Values Suggest a Neutral Configuration
Unfortunately, ENSO values are more toward the neutral configuration, which would suggest a winter driven by other systems than El Niño or La Niña. You have to be careful with neutral ENSO winters.
32
Source DOE, Industrial Information February 5, 2018
Expert Winter Outlooks NOAA scientists lined up to predict their third warmer than average winter in a row.
It almost made me want to come out FRIGID COLD just because of their lack of originality. I fear they’ve got fear of forecast‐itis.
33
Source DOE, Industrial Information February 5, 2018
Some issues I’ve noticed pointing to a colder winter. We did some work on an observed phenomenon from August and September, which could point to a cold winter…
34
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
2017 August September Temperature Departure from Normal…So Far
Through September 20th the August‐ September timeframe showed below‐ normal temperatures for the eastern half of the CONUS, which fits the statistically colder than normal winter.
35
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
Additionally, over the past five years the sun has steadily decreased in intensity to the point that we’ve not seen in the data since 1910. Following the completion of that cycle, and for several years after, the US experienced colder than normal winters. Again…I expect cold winters to start stacking up.
February 5, Source DOE, Industrial Information 36 2018
Together…The QBO and Lower Flux Progression Yields… Further, empirical evidence suggests that when the easterly QBO is combined with relatively low solar UV output (SUNSPOTS), colder risks are further enhanced. If we look at all year with easterly QBO and solar flux less than 900 W/m2, we get the following, rather dramatic, winter aggregate.
37
Source DOE, Industrial Information February 5, 2018
The Past Year…Traded In An Acutely Narrow Trade‐Range A final note…A close‐up view of the past year of futures trading shows some deep volatility around the winter timeframe. Highly dependent outcomes from the analysis we’ve done point to regional volatility due to cold weather incursion patterns that are already in place. Winter cold is expected to come into the US Lower‐48 out of Alberta, into the Plains, expanding down the eastern slope of the Rockies across the Plains and encompassing the Great Lakes. Then cold will sweep down into Texas and across the Southeast while eventually taking in the Eastern Seaboard. The only caveat will be the late start. We have noticed a seasonal shift to our weather patterns that has delayed the onset of every season by three to five weeks. April is colder than November, in general, so don’t expect a traditional start to winter until we’re into December. Bottom Line Fundamental Observations • • • •
-19
-18
-18
-18
-18
-17
-17
-17
-16
-17
Rolling forward curve of NATURAL GAS FUTR NOV17
4.89 4.78 4.67 4.56 4.45 4.34 4.22 4.11 4.00 3.89 3.78 3.67 3.56 3.45 3.34 3.22 3.11 3.00 2.89 2.78 2.67 2.56 -16
Finally, the forward curve continues to be flat…and that will remain until actual cold shows up. I’m still expecting a cold winter. Call for details.
Injections in 2017 YTD are the 5th lowest since 1994. Temperature profile suggests injections should be the 4th or 5th largest. Since September 2015, temperature profile has reduced demand by 1,857 Bcf compared to normal. All other things equal, current storage would be just ~1,600 Bcf, and storage would have run out if temperatures were equally as bullish.
Thank‐You
39
Prepared By Our Team…For Our Customers Dr. Jim Duncan
2
Source DOE, Industrial Information
The Internet of Everything
3
Source DOE, Industrial Information February 5, 2018
Global Economy Outlook…Not Too Hot…Not Too Cold
4
Source DOE, Industrial Information February 5, 2018
Global Economic Outlook – Good Chance of Continued Growth
5
Source DOE, Industrial Information February 5, 2018
China…Mega‐Trade & Development Initiative or Geopolitical Strategy?
6
Source DOE, Industrial Information February 5, 2018
Impact of Tax Repatriation How Much Will Be Thrown At Capital Investments?
7
Source DOE, Industrial Information February 5, 2018
Global Economic Outlook
8
Source DOE, Industrial Information February 5, 2018
U.S. Macro Economic Outlook
9
Source DOE, Industrial Information February 5, 2018
Consumer Debt…Problem? $3,827,220,000
2008 $2.6 Billion
10
Source DOE, Industrial Information
U.S. Industrial Plant Spending Forecast – By Region
11
Source DOE, Industrial Information
Global Power Generation Projects 24‐Month Outlook Active Capital & Maintenance Projects
12
Source DOE, Industrial Information
North American Power Industry Grassroot Project Kick‐Off 2018‐2022
13
Source DOE, Industrial Information
Energy Storage 1. Hydrocarbon fuels represent the current best energy storage medium/model. 2. The power stack is the current method of managing incremental demand. 3. The lack of efficient and dependable batteries limits the development of everything from electronics to hybrid vehicles. But new designs are offering better, safer alternatives. 4. Pumped Storage 5. Compressed Air 6. Flywheels 7. Supercapacitors 8. Superconducting Magnetic Energy Storage 9. Batteries 1. Trailer‐sized flow batteries ‐ vanadium redox and zinc‐bromide 2. high‐temperature batteries like sodium‐sulfur 3. Lead‐acid batteries are commonly used for high burst applications 4. Other batteries include metal‐air, lithium‐ion, nickel‐cadmium and lead‐ carbon
14
February 5, 2018
Global Oil & Gas Project Spending Outlook Total Active Projects By Market Region
15
Source DOE, Industrial Information February 5, 2018
S/D Wave Dynamics Will Predict Crude Prices The increased availability of crude oil due to shale has put OPEC in a bind. They no longer control the output of global crude oil and, therefore, the global price. Recently, any cuts in production made by OPEC have been met by US shale producers. This means the crude oil market price will move like a supply/demand controlled sine wave.
16
Source DOE, Industrial Information Source: IEA, EIA, OPEC
Oil & Gas Industry (US and Canada) Project Spending Analysis by Year
17
Source DOE, Industrial Information February 5, 2018
Global Crude Demand Outlook The Imbalance is Shifting
18
Source DOE, Industrial Information
Crude Oil Production – US Major Oil Basins Still a Major Contributor
19
Source DOE, Industrial Information
Onshore Natural Gas Production – US Remains Strong Despite Lower Rig Count
20
Source DOE, Industrial Information
NGL Demand US NGL Demand Growth 2016‐2020
21
Source DOE, Industrial Information
Natural Gas Demand US Natural Gas Cumulative Demand Growth (2016‐2020)
22
Source DOE, Industrial Information
Mexico – Project Spending 24‐Month Outlook
23
Source DOE, Industrial Information
Mexico – New Gas Pipelines Tapping into US Gas
24
Source DOE, Industrial Information
LNG Liquefaction Capacity Build‐Out Is The Spending Over?
25
Source DOE, Industrial Information February 5, 2018
U.S. & Canada Chemical Industry Construction Starts by Probability Factor 2017 vs 2018
26
Source DOE, Industrial Information February 5, 2018
Storage
27
Source DOE, Industrial Information February 5, 2018
Storage
28
Source DOE, Industrial Information February 5, 2018
The 2017 Hurricane Season
29
Source DOE, Industrial Information February 5, 2018
Maximum Temperature Departure from Normal This Past Winter
Winter 2016/2017 proved to be a warm one. Departures from normal averaged +5° F for most of the high‐population areas of the CONUS.
Winter 2016/2017
30
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
Winter Weather Has Been Anything But Consistent
31
Source DOE, Industrial Information February 5, 2018
In summary… 4 top 20 cold winters… 6 top 20 warm winters… 5 middle of the road winters…
Current ENSO Values Suggest a Neutral Configuration
Unfortunately, ENSO values are more toward the neutral configuration, which would suggest a winter driven by other systems than El Niño or La Niña. You have to be careful with neutral ENSO winters.
32
Source DOE, Industrial Information February 5, 2018
Expert Winter Outlooks NOAA scientists lined up to predict their third warmer than average winter in a row.
It almost made me want to come out FRIGID COLD just because of their lack of originality. I fear they’ve got fear of forecast‐itis.
33
Source DOE, Industrial Information February 5, 2018
Some issues I’ve noticed pointing to a colder winter. We did some work on an observed phenomenon from August and September, which could point to a cold winter…
34
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
2017 August September Temperature Departure from Normal…So Far
Through September 20th the August‐ September timeframe showed below‐ normal temperatures for the eastern half of the CONUS, which fits the statistically colder than normal winter.
35
Source DOE, Industrial Information Source: NOAA, MDA EarthSat
Additionally, over the past five years the sun has steadily decreased in intensity to the point that we’ve not seen in the data since 1910. Following the completion of that cycle, and for several years after, the US experienced colder than normal winters. Again…I expect cold winters to start stacking up.
February 5, Source DOE, Industrial Information 36 2018
Together…The QBO and Lower Flux Progression Yields… Further, empirical evidence suggests that when the easterly QBO is combined with relatively low solar UV output (SUNSPOTS), colder risks are further enhanced. If we look at all year with easterly QBO and solar flux less than 900 W/m2, we get the following, rather dramatic, winter aggregate.
37
Source DOE, Industrial Information February 5, 2018
The Past Year…Traded In An Acutely Narrow Trade‐Range A final note…A close‐up view of the past year of futures trading shows some deep volatility around the winter timeframe. Highly dependent outcomes from the analysis we’ve done point to regional volatility due to cold weather incursion patterns that are already in place. Winter cold is expected to come into the US Lower‐48 out of Alberta, into the Plains, expanding down the eastern slope of the Rockies across the Plains and encompassing the Great Lakes. Then cold will sweep down into Texas and across the Southeast while eventually taking in the Eastern Seaboard. The only caveat will be the late start. We have noticed a seasonal shift to our weather patterns that has delayed the onset of every season by three to five weeks. April is colder than November, in general, so don’t expect a traditional start to winter until we’re into December. Bottom Line Fundamental Observations • • • •
-19
-18
-18
-18
-18
-17
-17
-17
-16
-17
Rolling forward curve of NATURAL GAS FUTR NOV17
4.89 4.78 4.67 4.56 4.45 4.34 4.22 4.11 4.00 3.89 3.78 3.67 3.56 3.45 3.34 3.22 3.11 3.00 2.89 2.78 2.67 2.56 -16
Finally, the forward curve continues to be flat…and that will remain until actual cold shows up. I’m still expecting a cold winter. Call for details.
Injections in 2017 YTD are the 5th lowest since 1994. Temperature profile suggests injections should be the 4th or 5th largest. Since September 2015, temperature profile has reduced demand by 1,857 Bcf compared to normal. All other things equal, current storage would be just ~1,600 Bcf, and storage would have run out if temperatures were equally as bullish.
Thank‐You
39
