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Volatility Continues as Natural Gas Prices Fall

NYMEX front-month natural gas closed on Thursday at $3.583/MMBtu, down 6.37% from last week’s closing price of $3.827/MMBtu. The EIA’s weekly storage report issued yesterday morning reported a natural gas withdrawal of 141 bcf, which was right in line with the 140-150 bcf expected pull. The 141 bcf decrease in storage was right in line with the 144 bcf five-year average for the same week. The total 2,773 bcf in storage is 20.1% below last year and 20.6% below the five-year average. “While the volatility of the NYMEX near-month natural gas futures prices at the Henry Hub was low for most of 2018, it has increased significantly since October. The rise in natural gas price volatility coincides with historically low pre-winter levels of working natural gas storage stocks and rising natural gas consumption relative to current natural gas production levels” (EIA).

Natural gas prices across the Northeast have fallen after the cold front passed. At the Transco Zone 6 pipeline for NYC, prices decreased from $4.39/MMBtu last Wednesday to $3.63/MMBtu this past Wednesday, stated EIA’s Natural Gas Weekly Update. U.S. natural gas consumption decreased by 16% compared to the previous week with the largest decrease coming from the residential and commercial sectors where natural gas use declined by 25% due to warmer than average temperatures across the lower 48 states. Constellation’s Daily Natural Gas Market Commentary predicts above normal weather trends through the rest of the year and possibly even into the first week of January.

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 partsof 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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