Key Drivers
- Continuing warm weather forecasts in the Midwest and Northeast
- Lack of cold weather demand in the short-term market
- Strong LNG exports that could rise even more this summer
- Upcoming natural gas storage injections beginning later in April
- The arrival of air conditioning season increasing natural gas and power consumption
- Long-term global natural gas demand growth is pushing up long-term prices
Commentary
Electric Utility Prices & Columbia Gas of Ohio Updates:
By now most everyone has heard that beginning June 1, 2023 most utilities are increasing electric generation rates to $.10/kwh or above. These prices are due to their wholesale power auctions held last year and earlier this year. Of course these utility generation rates are much higher than current wholesale custom price offers and especially higher than end user contract prices locked in prior to June 2021.
Flying under the radar is the fact that Columbia Gas of Ohio recently substantially increased transportation rates and monthly customer charges for General transportation Service (GTS) and Large General transportation Service (LGTS) Columbia Gas customers. GTS custom charges jumped from $21.16/month to $150/month while LGTS monthly customer charges jumped from $560/month to $4140/month. Transportation rates for LGTS customers have nearly doubled as well. These Columbia Gas rate and customer charge increases mean that there could be current LGTS Columbia Gas customers who would be better served in relation to dollars spent as a GTS class of customer. RD Energy has built a cost comparison spreadsheet for the Columbia Gas GTS and LGTS to determine which tariff class your company would be charged the lower total burner-tip utility cost. Just let us know if we can help your business determine which is best for your business and how much the rate and customer charge will increase your annual natural gas distribution charge spend.
OPEC Supply Cuts:
The recent OPEC supply cut probably will have only very limited impacts on natural gas and power in the short term. The main mechanism in recent years has been on the supply side: higher oil prices → higher oil drilling → higher associated natural gas production → lower natural gas and power prices.
Coal Plant Retirement:
A recent coal plant retirement is supportive for natural gas and power pricing. The impact may be stronger than people realize in that it reduces the price elasticity of coal-to-gas and gas-to-coal switching. This mechanism has effectively served to balance natural gas pricing for most of the past decade – but coal retirements weaken this price-balancing mechanism and structurally increase natural gas price volatility risks. This impact is highly underestimated and underlines some of our apprehension for higher natural gas and power prices heading into mid-decade
Wholesale Pricing Outlook:
Natural gas and electric prices are a tale of two viewpoints: short-term very low consumer demand versus very concerning long-term global demand. In the near term any hope for continue cold weather appears to have evaporated over the last few days. This shoulder season between winter demand ending and summer Air Conditioning power generating demand beginning is helping keep spot well head natural gas and therefore, spot electric prices low. However, before too long we should see utilities around the country begin to inject natural gas into storage in preparation for next winter as well as the start-up of some air conditioning load. This should increase natural gas demand enough to mostly put an end to the natural gas price decline. While May NYMEX is trading around $2.08/MMBTU looking at prices by August we see prices $.60 – $.70/MMBTU higher and by November $1.00/MMBTU higher. As a reference point May 2024 is currently trading higher at $3.13/MMBTU and May 2025 is trading even higher at $3.75/MMBTU. The year over year increase in natural gas and electric prices is definitely notable. One reason natural gas prices are higher longer term is due to growing global demand for U.S. natural gas production. The U.S. is working to meet that growing demand by building new LNG export facilities that could result in U.S natural gas producers increasing the maximum LNG export capacity from 16 bcf/day to 26 bcf/day by late 2024 or early 2025. The ongoing question is and will be can U.S. natural gas production grow to meet domestic and global demand without prices escalating substantially in the years to come?