Despite Northeast Heat Wave, Summer NG Prices on Track for Lowest Since 1998
Front-month natural gas contract closed yesterday at $2.287/MMBtu. Stockpiles increased by 62 bcf while the market estimates ranged from 56 bcf to 72 bcf. This same week last year saw a 45 bcf injection and the five-year average is a 63 bcf injection. The total 2,533 bcf current in storage is 13% above last year and 5.3% below the five-year average. The 6-10 day weather outlook in the Northeast looks cooler and less humid than the next couple of days (Aggressive).
EIA’s July 2019 Short Term Energy Outlook forecasts Henry Hub natural gas spot prices for June, July and August of this year to average $2.37/MMBtu. This would be the lowest summer Henry Hub natural gas average price since 1998 and will be 55 cents/MMBtu, 19%, lower than last summer’s average (EIA). “Total U.S. consumption of natural gas rose 2% compared with the previous report week” (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.