Prompt Month Natural Gas Prices BELOW $2
Prompt month (Feb 20) gas prices are now trading below $2/MMBtu! Last weekend, an updated weather forecast shifted from normal expected winter temperatures for much of the US to a significantly warmer above average outlook for the next few weeks. This forecast caused prompt month gas prices to dive under $2/MMBtu for the first time. At one point this week, prices even fell below $1.90/MMBtu. Thursday’s -92 Bcf storage report withdrawal exceeded expectations by 3Bcf but was insignificant compared to this time last year where we recorded a 152 Bcf decrease. The 5-year average withdrawal for this time of the year is at 194 Bcf. Gas storage is now 23% higher than this time last year and over 9% higher than the 5-year average. Early reports are showing natural gas production numbers slowly dialing back due to the low prices. Cal 2021 prices are now below $2.40/MMBtu.
Day-Ahead on-peak prices in NYISO, PJM West Hub, and ISO-NE are trading between $23-$25 mWh, very similar to where they were last week. ERCOT (TX) prices are still trading in the teens, at around $19 mWh. Given the above-average temperature forecasts for the new few weeks, power prices should hold steady. 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. Consider making a hedge now to reduce portfolio exposure in case prices do begin to increase.
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.