ALL ABOUT THE NATURAL GAS MARKET:
NATURAL GAS: HIGH DEMAND
The higher gas demand is coming from three places.
- LNG exports are currently at just over 11 Bcf/d via ship and 5-6 Bcf/d via pipeline to Mexico.
- Higher demand for power. Especially from the Industrial sector. This has far surpassed anything in recent memory and is not only well above the 5-year average but is also out of the five-year range.
- Industrial Demand. While industrial demand is up from last year from about 21.50 bcf/d to 21.75 bcf/d, that is still 250 MILLION cubic feet daily.
The gas price in 2023 and 2024 has begun to dip just a bit (though it did go up last week), but further out, we are seeing pricing trend upwards in 2026, 2027, and 2028. This may be due to a more favorable, revised economic forecast that predicts growing demand, or it may be due to fears of natural gas producers continuing to reduce rigs and eventually cut production.
EIA NATURAL GAS REPORT: WEEKLY GAS STORAGE
NATURAL GAS DEMAND POWER BURN
NATURAL GAS DEMAND INDUSTRIAL SECTOR
NATURAL GAS DEMAND WITH EXPORTS
NYMEX 12-MONTH ROLLING STRIP (NOV-OCT)
ALL ABOUT THE NYMEX TWELVE-MONTH STRIP
- The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
- The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
- A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
- The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
- The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
- The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.
ELECTRICITY: FORWARD POWER PRICING
Forward power pricing has remained steady since early August, with 2024 pricing about $3.00 less than 2025, 2026, and 2027, following the same trend as natural gas.
BGE FORWARD POWER PRICING
AD HUB FORWARD POWER PRICING
What is Forward Power Pricing?
Forward power pricing is a financial mechanism used in the energy industry, particularly in the electricity market. It involves the pricing and trading electricity for future delivery at a predetermined price. This mechanism allows electricity producers, consumers, and traders to hedge against price fluctuations in the electricity market and manage their risk exposure.
Here’s how forward power pricing generally works:
- Agreement: Parties agree to buy or sell a certain amount of electricity at a specified price for delivery at a future date. This agreement is known as a forward contract.
- Price Determination: The forward price is typically determined based on various factors, including supply and demand expectations, fuel prices, weather forecasts, and market conditions. It is negotiated between the buyer and the seller.
- Hedging: Electricity producers and consumers can use forward contracts to hedge against price volatility. For example, a power plant may enter into a forward contract to sell electricity at a fixed price, ensuring a stable revenue stream regardless of market price fluctuations. Conversely, a large electricity consumer, such as an industrial facility, may enter into a forward contract to buy electricity at a fixed price to manage budgetary risks.
- Market Liquidity: Forward power markets vary in terms of liquidity. Some regions have active and liquid needs where participants can quickly enter and exit positions. In other areas, forward markets may be less developed or less liquid, making it more challenging to find counterparties for trading.
- Delivery and Settlement: When the contract matures, the electricity is physically delivered to the buyer, or the financial settlement is made based on the agreed-upon price. Settlement can be in cash, where the difference between the contract and market prices is paid, or through physical delivery, where the actual electricity is transmitted to the buyer.
Forward power pricing is essential for managing risk and ensuring a stable electricity supply in deregulated or partially deregulated electricity markets. It allows market participants to make informed decisions about their future energy costs and can contribute to price stability in the electricity market. However, it also carries risks, as market conditions may change, leading to a mismatch between the contracted and market prices at the time of delivery or settlement.
WEATHER: 6-10 DAY AND 8-14 DAY OUTLOOK
A weather system is expected to move through the West on Monday, bringing showers and temperatures ranging from the 50s to 70s, with lows in the 30s and 40s. The rest of the United States will experience pleasant weather, with highs in the 60s to 80s, except for hotter temperatures in the 90s in Texas and nearby states.
Later in the week, the western system will progress into the central US, causing a drop in temperatures to the 60s to 80s, including much of Texas. Following this, a colder system is forecasted to move across the Midwest and Northeast from Friday to Sunday, resulting in highs in the 50s to 60s and lows in the upper 30s and 40s.
