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Possible Final NG Withdrawal of Season Leaves Storage Deficit

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 The May natural gas contract closed yesterday at $2.712/MMBtu, which was the lowest front month closing price for all of March. Stockpiles decreased by 36 bcf for the week ending March 22nd, which is most likely the last pull for this withdrawal season. The 36 bcf pull is less than both the 66 bcf withdrawal seen this same week last year and the 41 bcf five-year average. The total 1,107 bcf in storage is only 25.3% of its full capacity, 20.5% below last year and 33.2% below the five-year average. At the Transco Pipeline Zone 6 servicing NYC, prices decreased from $2.60/MMBtu last Wednesday to $2.36/MMBtu this past Wednesday (EIA).

“U.S. electricity generation achieved an all-time high in 2018, hitting 4,177,810 GWh, a 3.6% increase compared with 2017 (4,034 ,268 GWh). The previous U.S. all-time high for generation occurred in 2007 at 4,156,745 GWh” (EIA). This increase in production was driven by strong growth in end-use sales. EIA’s Electricity Monthly Update report stated, “total end-use sales were up 2.1% in 2018 compared with 2017, led by growth in the residential (6.2%) and commercial (1.8%) sectors. The increased sale of electricity in 2018 is attributable to colder winter and hotter summer weather in 2018 compared with the previous year. Weather was a major factor in electricity demand, particularly for the residential and commercial sectors, because heating degree days (HDD) were up 14% and cooling degree days (CDD) were up 9% in 2018 compared with 2017.”

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