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NG Prices Plummet Following Storage Withdrawal

Prompt month (Feb 20) gas prices reached its lowest price again on 1/15/20 when prices settled at $2.12/MMBtu, matching the low that was previously set back on January 2nd. After today’s storage report release, prices plummeted and are currently trading around $2.07/MMBtu, 5 cents lower than yesterday. The EIA reported a withdrawal of 109 Bcf which was much higher than the expected change of 90 Bcf. Current storage levels are about 20% above last year’s levels and 5.2% above the 5-year average. The remainder of 2020 gas pricing is trading at $2.25/MMBtu. Calendar year 2021/2022/2023 gas strips are still all trading around $2.45/MMBtu. Weather forecasts are showing colder temperatures arriving next week so there is a chance prices will increase due to demand.

Current Day-Ahead on-peak prices in NYISO and PJM West Hub are trading between around $28 mWh, very similar to where they were last week. ISO-NE prices are ticking upwards in anticipation of colder temperatures and snow for this weekend. ERCOT (TX) prices right now are still trading in the teens, at about $19 mWh. Even though the winter months are not traditionally opportune to hedge future contracts, prices for both electricity and natural gas remain attractive for the upcoming months. This current scenario can quickly change due to weather.

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.

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