Power Prices Remain Stable
Significantly warmer temperatures throughout the continental US triggered an increase in natural gas demand, leading to an injection number that is similar to the 5-year average. On Thursday morning, the Energy Information Agency (EIA) released an injection number of 93 Bcf, bringing total storage volumes to 2,807 Bcf. We are now 36% higher than this time last year and almost 18% higher than the 5-year average. July prompt month gas prices are still trading around $1.80/MMBtu. The remainder of 2020 natural gas contracts is currently trading at $2.10/MMBtu. As oil prices begin to creep upwards, production is also expected to increase over the next few weeks. This may trigger an increase in natural gas production, leading to more gas going into storage.
Day Ahead power prices for much of the Northeast remained in the low $20/mWh range for Friday, 6/12/20. Power prices for NYISO Zone G traded around $22/mWh while PJM West Hub was $24/mWh, ISONE Mass Hub at $23/mWh. Without a widespread heatwave, power prices will likely stay at the current levels due to the lack of demand and average temperatures. For customers on an index product, floating with the market would remain the current recommendation.
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 has grown and surpassed any speculation that production would not be able to keep up with demand due to LNG and Mexican exports.