NG in Storage Continues to Build Due to Mild Temperatures
After trading at the lowest level since 2016, July’s NYMEX Gas Contracts continued to decrease over the past week. Gas storage volumes increased by 102 Bcf week over week, totaling 2,088 Bcf. This represents about a 10% increase from this time last year. After the release of the storage numbers, July’s gas contracts were trading around $2.35. Working gas in storage is still 230 Bcf below the five-year average. Power prices in both NYISO Zone J and PJM West Hub were down around 15% over the previous week. The average ISONE Mass Hub price was down 5% week over week.
Mild to colder than average temperatures continue to permeate throughout the lower 48 states with no major shifts in the weather pattern. With such a mild start to summer, the market expects natural gas storage to continue to build over the next month.
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.