July ’19 NG Contract Hits Lowest Point Since 2016
The July 2019 natural gas contract closed yesterday at $2.324/MMBtu, which is the lowest point since 2016. Analysts expected a 109 bcf injection into storage for the week ending 5/31/19, but we ended up with a 119 bcf increase. The total 1,986 bcf in storage is 45.4% of the total storage capacity with 21 weeks left in the injection season. Stockpiles are 182 bcf above last year (10.1%), and 240 bcf below the five-year average, -10.8%. “Natural gas prices fell at most locations this report week… at the Transcontinental Pipeline Zone 6 trading point for New York City, prices decreased 9¢ from a high of $2.33/MMBtu last Wednesday to $2.24/MMBtu yesterday” (EIA).
The current market level is due to wild weather across the U.S. Normal temperatures are expected in the Northeast in the 6-10 and 8-14 day outlook. “Natural gas consumed for power generation climbed by 10% week over week. Industrial sector consumption increased by 2% week over week. In the residential and commercial sectors, consumption declined by 11%. Natural gas exports to Mexico increased by 1%” (EIA).
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.