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Natural Gas Prices Fall, Storage Increases

July 2020 natural gas prices are tumbling after Thursday’s storage report. As of writing this, prices are trading down $0.09 at $1.51/MMBtu. Low demand, steady production, and strong natural gas storage levels are keeping natural gas prices close to historical lows. The EIA reported a huge increase in natural gas storage inventories in their weekly storage report for the week to June 19th. Storage increased by 120 Bcf in the reporting week rising to 3,012 Bcf. Stocks were 739 Bcf higher than last year at this time and 466 Bcf above the five-year average of 2,546 Bcf. The maximum gas recorded in storage was around 4,000 Bcf.

There have been increases in drilling efficiency, and U.S. crude oil and natural gas production hit new records of 12.2 million barrels per day (b/d) and 111.5 billion cubic feet per day (Bcf/d) in 2019. Meanwhile, stocks suffered their steepest losses in two weeks, with the Dow falling about 700 points, or 2.7%. The S&P 500 and Nasdaq also fell more than 2%. 1.5 million worked filed new state unemployment claims last week, as businesses reopened but then virus cases spiked.

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.

Download full report here