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NG Production Grows Amid Demand Increases

The July ’19 contract, which made its debut yesterday as the front month, closed at $2.547/MMBtu yesterday. Storage increased by 114 bcf, which was much higher than the expected 98 bcf injection and was also the 11th consecutive injection greater than historical averages. “The build was greater than both the 95 bcf injection seen last year for the corresponding week, as well as the 97 bcf five-year average (Direct Energy).” The total 1,867 bcf in storage is 9.1% above last year and 12.1% below the five-year average.

Transco Zone 6 natural gas prices increased from $2.27/MMBtu last Wednesday to $2.33/MMBtu this past Wednesday but Zone J LBMP prices remained below $26.00/MWh this week. Both supply and demand increased this report week due to production growth and the electric power sector, respectively. “Prices at the Waha Hub in West Texas, which is located near Permian Basin production activities, averaged $0.01/MMBtu last Wednesday, $2.60/MMBtu lower than Henry Hub prices. Yesterday, prices at the Waha Hub averaged –$0.80/MMBtu, $3.43/MMBtu lower than Henry Hub prices. They reached a record low of –$2.31/MMBtu on Friday amid ongoing restrictions on the Natural Gas Pipeline Company’s NGPL system” (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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