Natural Gas Prices Stay Well Below $3
Front-month natural gas prices closed on Thursday at $2.580/MMBtu trailing slightly behind the lowest closing price of 2018 thus far, $2.552/MMBtu this past Monday. Natural gas in storage fell by 194 bcf, which is 7 bcf higher than the expected withdrawal of 187 bcf. The total 1,884 bcf in storage is 18.7% below the five-year average and 23.4% below last year’s levels. Constellation New Energy’s Weekly Market Report says “balance of February forecasts along with strong gas production and a steady storage deficit have been contributing to the downward pressure on gas and power prices with NYMEX at a 12 month low.”
Cheniere Energy signed a contract through 2043 with China National Petroleum Corp for deliveries of 0.6 bcf/day priced off Henry Hub which is a representation that Henry Hub is becoming a “global benchmark index for LNG out of the U.S.” The EIA’s Annual Energy Outlook for 2018 states that in order to satisfy the growing natural gas demand, production will have to expand into areas that are more expensive which puts upward pressure on production costs and ultimately natural gas prices. Electricity demand is projected to grow steadily until 2050 as natural gas-fired capacity is added through 2050 to meet this growing demand. “80 gigawatts (GW) of new wind and solar photovoltaic capacity are added from 2018-2021, motivated by declining capital costs and the availability of tax credits” (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 growing, however, there is a chance 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.