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US NG Net Exporter For Second Year in a Row

NYMEX front month natural gas futures closed yesterday at $2.969/MMBtu, down 2.46% from last week’s closing price of $3.044/MMBtu. Stockpiles decreased by 91 bcf, which was slightly higher than the expected 87 bcf withdrawal. The withdrawals this same week last year were 337 bcf and the five-year average is 187 bcf. The total 2,614 bcf of natural gas in storage is 7.2% below last year and 15.1% below the five-year average for the same report week. “At the Transcontinental Pipeline Zone 6 trading point for New York City, prices increased $2.53 from $2.72/MMBtu last Wednesday to their weekly high of $5.25/MMBtu this past Wednesday” (EIA).

“Natural gas storage inventories entered the winter season on November 1 at significantly lower levels than in previous years, which contributed to unusual price volatility and price increases in later months of the year” (EIA). 2018’s average annual Henry Hub natural gas spot price increased to $3.16/MMBtu, which is 15 cents higher than the average in 2017. “Growing U.S. production and low temperatures during the winter months supported increased natural gas consumption through 2018. In addition, continued increases of U.S. natural gas exports by pipeline to Mexico and additional LNG export capacity that came online during the year resulted in the U.S. exporting more natural gas than it imported for the second year in a row” (EIA). The EIA’s latest Inventory of Electric Generators report expects 23.7 GW of new capacity additions and 8.3 GW of capacity retirements for the U.S. electric power sector in 2019. The utility-scale additions consist primarily of wind (46%), natural gas (34%), and solar photovoltaics (18%). The remaining 2% of capacity additions consist primarily of other renewables and battery storage capacity.

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 supplyprimarily due to LNG and Mexican exports and increased power burn, presenting upside risk to power pricing in the future.

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