Having weathered some rougher seas this past winter, electric and natural gas markets are characteristically calm right now. The prompt month NYMEX natural gas price dipped below $2.50 per MMbtu, reaching a low not seen for about three years. Weather has been moderate, natural gas production is climbing, and the last injection into the natural gas storage was well above consensus expectations.
While the seas are calm, now is the perfect time to be preparing for potential price volatility that could appear this summer and fall. As we have pointed out in our updates this year, natural gas storage inventory is historically low. Gas has become a larger, more important fuel in electric power production as coal plants have retired and new gas-fired generation has come on line. Hot weather this summer could divert natural gas that would otherwise go into storage into more production of electric power to meet higher cooling requirements. That is a risk worth managing, and our energy advisors are actively tracking and hedging pricing for our clients for the upcoming and future winter seasons.
In addition to the potential short term impacts of hot weather and natural gas inventory deficits, the outlook for energy demand is strong. The Energy Information Administration (EIA) recently reported that U.S. energy consumption reached a record high in 2018 of 101.3 Quads (quadrillion BTUs). That was increase of 4% from 2017 and exceeded the previous high that occurred just prior to the Great Recession in 2007. Although slowing, the U.S. economy is still in the growth cycle. Moreover, LNG export projects are getting approved and completed that will increase the export of natural gas. Demand and export growth are bullish drivers for future prices.
Usource advocates a proactive strategy for its clients. If you’re not engaged with your Usource energy advisor, we highly recommend you get in touch now to review your price positions and consider additional hedging and contracting options to strategically manage your energy purchasing.