Low End-of-Winter NG Storage Projections
Front-month natural gas futures closed on Thursday at $3.202/MMBtu, 1.47% below last week’s closing price of $3.25/MMBtu. Natural gas stockpiles increased by 58 bcf which is just slightly higher than the expected 54 bcf injection. The total 3,095 bcf in storage is 3.6% below last year and 2.0% below the five-year average. High weather-related demand has reduced the end-of-winter projected natural gas storage to 1,250 bcf. Cold weather could push it even lower and prices could rise drastically due to the market being unable to handle the high demand. Warmer weather could increase end of winter storage and have the opposite effect on prices but it isn’t clear which way winter temperatures will move.
Natural gas prices at the Transco Zone 6 trading point for NYC increased from $3.40/MMBtu last Wednesday to $3.49/MMBtu this past Wednesday. The EIA has reported, “a natural gas pipeline rupture in British Columbia has resulted in a sharp decline in U.S. natural gas imports from Canada, causing higher prices in the Pacific Northwest and logistical challenges for the pipeline network in the region.” Natural gas spot prices at the Northwest Suma, which is at the British Columbia- Washington border, reached $7.79/MMBtu on Monday. These prices were trading at a discount to Henry Hub prior to the pipeline burst on October 9th (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.