This September, there were several changes in market conditions that played a significant role in price fluctuations for gas and electric. Increased levels of natural gas in storage causes prices to fall from an average of $8.81 per MMBtu in August to $7.88 MMBtu in September. The increase in natural gas production made the U.S. the number one producer in the world, contributing 129 Bcf to the natural gas underground storage during the week of September 23rd. Increased demand for natural gas in electricity generation and the industrial sector caused price spikes 4Q22. Electricity prices in New York City averaged 24.9 cents in August 2022. As of September 30th, the U.S. natural gas inventories have 3.106 Tcf in storage, 7.8 percent below the 5-year average. Prices are expected to fall in 2023 with the increased amount of natural gas production and amount in storage.
The September average Henry Hub spot price has fallen to of $7.88 per MMBtu from an average of $8.81 per MMBtu in August. Prices are starting to fall because the U.S. is producing record levels of natural gas per day. According to the EIA dry gas production will average 99.0 Bcf/d in 4Q22 and rise to 100.4 Bcf/d by 2023. A concern is that winter weather can drive the market up to $15-$20 per MMBtu given the correct demand. The U.S. also became the number one producer of natural gas in 2022, with 70 percent of its exports going to Europe. U.S. LNG exports are up 1.7 Bcf/d from 3Q22, totaling 11.7 Bcf/d. The volume of LNG exports will be affected by the planned closing at Cove Point in October and the resuming of partial operations at the Freeport LNG terminal in mid-to-late November. The consumption of 94.6 Bcf/d is expected to drop by 1.9 Bcf/d in 2023 because of declines in consumption in the industrial sector. As a result of increased natural gas consumption in 2022, CO2 emissions increased by 1.7 percent, but are forecasted to drop by 1.8 percent in 2023, returning them to 2021 levels. In the 4th quarter of 2022, the Henry Hub spot price is expected to average $9.00 per MMBtu and decrease to $6.00 per MMBtu in 2023.
In 2022 electricity sales are expected to increase by 2.6 percent due to the continued economic expansion after the COVID-19 recession. After the pandemic, the market saw one of the biggest jumps in electricity demand because the economy was kickstarted when individuals returned to work, and industries returned to pre-pandemic conditions. The EIA forecasts that the average residential price per kWh in the U.S. will be 14.6 cents, a 7.5 percent increase from 2021. In New York, the average price per kwh this August was 24.9 cents per kWh, 2.3 cents higher than the average in August of 2021. The spike in electricity prices is due to the increased use of natural gas in electricity generation, a hotter summer than forecasted, supply chain issues from the war in Ukraine, and decreased natural gas reserves. With the increased growth in generating power from renewable resources, natural gas will have limited use in power generation as time goes on. By 2023 electricity sales are forecasted to drop by 0.4 percent.
The energy forecast for 2023 predicts a drop in natural gas and electric prices and depending on the severity of the winter weather, international issues, and market conditions we can see price drops as soon as the first half of 2023 where F&D Partners will recommend a different pricing strategy.
A little about us:
F&D Partners is one of the leading energy consultants and engineering firms in the deregulated market. Established in July of 2015 and based in New York City, we currently manage the energy for 1,500 clients in nearly 20 states and five Canadian provinces. We work to find the most competitive prices for electricity and natural gas in the market to save our clients up to 40 percent on their energy bills while running energy studies to help clients reduce their emissions by increasing energy efficiency.
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