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High NG Production Continues to Decrease Storage Deficit

The May natural gas contract closed on Thursday at $2.490/MMBtu, which is 6.39% below last week’s closing price of $2.660/MMBtu. Mild temperatures keep pushing prices down as high production quickly decreases the storage deficit against last year. Natural gas stockpiles increased by 92 bcf, compared to the five-year average net injection of 21 bcf and the 34 bcf withdrawal seen this same week last year. The total 1,247 bcf in storage is now only 4.4% below last year and 24.9% below the five-year average. Prices at the Transco Zone 6 trading point servicing NYC closed at $2.35/MMBtu this past Wednesday compared to $2.55/MMBtu last Wednesday (EIA).

“The price of the 12-month strip averaging May 2019 through April 2020 futures contracts declined 15¢/MMBtu from $2.876/MMBtu to $2.726/MMBtu” (EIA). LMP prices at Zone J NYC were around $28.00/MWh yesterday due to warmer temperatures and high natural gas production and prices are trading around $25.00/MWh today after the EIA released the storage report. In 2018, prices for this day last year were around $47.00/MWh and $48.00/MWh, respectively.

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.

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