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Natural Gas Prices Reach $3.50

Natural gas futures closed on Thursday at $3.543/MMBtu, up 7.88% from last week’s closing price of $3.284/MMBtu. Storage inventories grew by 65 bcf, which was higher than the expected 55 bcf injection and much higher than the 22 bcf build seen this same week last year. Direct Energy’s Daily Market Update stated, “there is one more storage injection expected this season before withdrawals begin.” The total 3,208 bcf in storage is only 73.3% of the total 4,373 bcf of storage capacity and is 15.3% below last year’s level and 16.2% below the five-year average.

The EIA’s Natural Gas Weekly Update reported, “Henry Hub spot prices rose 22¢ from $3.29/MMBtu last Wednesday to $3.51/MMBtu this past Wednesday. This report week marks the fourth straight week of price increases; during that time, Henry Hub spot prices have risen 20%” (EIA). Prices at the Transcontinental Pipeline Zone 6 trading hub for NYC increased 80¢ from $2.75/MMBtu last Wednesday to $3.55/MMBtu this past Wednesday. Temperatures were 2° F higher than normal, averaging 54° F in the Lower 48 states, and 4° F higher than last year at this time (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.

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