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U.S. Sets New Record for Natural Gas Consumption

The August natural gas contract traded on the NYMEX closed on Thursday at $2.244/MMBtu, 0.311% below last week’s closing price of $2.251/MMBtu. Stock levels increased by 36 bcf, which exactly matched the market’s estimates, but fell below the five-year average for the second week in a row. The total 2,569 bcf of natural gas currently in storage is 13.2% above last year (2,269 bcf) and 5.6% below the five -year average (2,720 bcf). Prices at the Transco Zone 6 trading hub for NYC decreased 32 cents from $2.41/MMBtu last Wednesday to $2.09/MMBtu this past Wednesday.

EIA’s Natural Gas Weekly Update stated, “The U.S. set a new record for natural gas consumption by electric power plants (power burn) of 44.5 bcf/d on Friday, July 19….” Before this summer, the previous record was set on July 16, 2018 at 43.1 bcf/d, but since July 1, 2019, that record has been broken on five days: July 10 and 16th -19th 2019. This record-breaking natural gas consumption by electric generators was caused by much higher than normal temperatures, structural changes to the power sector particularly in the Northeast, and low natural gas prices (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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