January 7, 2019
By: Luke Grygier
End of 2018 Natural Gas and Electricity Reflection and Predictions
The energy market in the tristate area experienced high levels of volatility in the final months of 2018.
In particular, natural gas fluctuated materially during the month of November. After prices climbed for roughly five weeks, they finally receded back to September levels in the middle of December. As of January 3rd, prices at the Henry Hub for the first half of this year are the lowest they have been since the middle of September with the only exception being March, which is trading at the lowest prices in history. The unsteady nature of the natural gas market recently can be explained by lower-than-usual storage stocks heading into the winter months. Furthermore, there has been a steady increase in consumption despite decreasing production, leading to unpredictability and a growing storage deficit. As the weather warms up, we can expect to see more consistent storage withdrawals and corresponding pricing. However, the current amount of eastern storage is down 11.4% from last year, which could pose another, similar threat should cold weather return.
The electricity market has witnessed similarly low rates for customers, but without as much variation. February 2019 peak forwards on December 31st were priced at an all-time low of $62.25/MWh. Recent trading for later months continue a long term trend of rising prices dating back to the beginning of this year. The steadiness of the market can be attributed to high levels of generation relative to the average of the past years, increases in capacity, and heightened levels of overall efficiency. However, it appears that these trends might diverge in different directions shortly. The New York Power Authority recently approved a $600 million credit line for large-scale consumers to increase their efficiency, such as universities and municipalities. The gains in efficiency will correspond with a reduction in consumption, and thus the amount of necessary capacity. The Public Service Commission expects to use grants like this to meet an annual reduction goal of 3% in electricity sales.