Storage Deficit Against Last Year Eliminated
The May 2019 contract closed yesterday at $2.514/MMBtu, which is $0.272/MMBtu, 9.76%, lower than the $2.786/MMBtu seen this same day last year. Storage levels increased by 92 bcf, which is right in line with market estimates for the week ending 4/19. This also eliminates the deficit against last year’s storage level by 4.3%. The total natural gas in storage currently stands at 1,339 bcf whereas last year at this time, it was 1,284 bcf, but the five-year average is 1,708 bcf. Transco Zone 6 prices decreased from $2.55/MMBtu last Wednesday to $2.35/MMBtu this past Wednesday (EIA).
Zone J Day-Ahead prices have stayed around $27/MWh-$28/MWh all week and the May 2019 around the clock forward curve pricing is about $27/MWh while June increases slightly to about $29/MWh. In the North East, weather is expected to be in line with historical temperatures for the next 6-14 days, which should not spark too much market volatility.
Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas-fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production is expected to continue to grow, however, there is speculation that demand growth will outpace supply primarily due to LNG and Mexican exports and increased power burn, presenting upside risk to power pricing in the future.