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NG Prices Fall Below $3 For the First Time Since September

Front month natural gas closed on Thursday at $2.945/MMBtu, down 10.84% from last week’s closing price of $3.303/MMBtu. Natural gas prices fell below the $3.00/MMBtu mark on Monday, the 31st, for the first time since late September. This drop is due to the recent warm weather and the projected higher than normal temperatures for the next few weeks. Stockpiles decreased by 48 bcf, which was right in line with the expected 49 bcf withdrawal. This 48 bcf decrease was 73 bcf lower than the five-year average for this same week. The total 2,725 bcf of natural gas in storage is 18.6% below the previous year and 19.2% below the five-year average.

Constellation’s Daily Natural Gas Market Commentary states that temperatures are expected to be higher than normal for the first three weeks in January. Until the weather forecast shifts to show colder temperatures, we could see natural gas prices drop to the $2.75/MMBtu area. The EIA’s Natural Gas Monthly report estimates October 2018’s consumption level to be 73.5 bcf/d, 11.8% higher than the 2,037 bcf consumed in October 2017.“Total exports were 9.9 bcf/d, an increase of 8.9% compared with 9.1 bcf/d in October 2017. The increase in exports continues to be driven by liquefied natural gas. LNG exports in October 2018 were 12.5% higher than in October 2017. In October 2018, the United States exported 2.9 bcf/d of LNG to 14 countries” (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.