Natural gas and electricity prices were once again volatile in March 2023. Natural gas, which
accounts for almost a quarter of the domestic consumption, has decreased almost 3% from $2.38
MMBtu in February to $2.31 MMBtu. The first quarter of 2023 (1Q23) experienced mild winter weather,
leading to natural gas inventories finishing the withdrawal season (November-March) at 19% higher
than the five-year average between 2018-2022. On Friday, March 31, 2023, the EIA estimated that
there was 1,830 Bcf of working gas in storage. This reflects a net drop from the prior week of 23 Bcf.
At this time, stocks were 443 Bcf greater than they were a year before and 298 Bcf higher than the
1,532 Bcf five-year average. Total working gas is within the historical range of five years at 1,830 Bcf.
Due to the imminent arrival of warmer weather, the likelihood of sudden and steep price hikes
diminishes as the spring approaches. Given such weather, the storage levels of natural gas being
considerably higher than the average of the past five years, and the production being at an
unprecedented peak, F&D Partners advises their clients to stabilize their natural gas prices by
offering a fixed-rate, as the likelihood of observing such low prices in the future is minimal. As
additional photovoltaic capacity is brought online, the utilization of natural gas for electricity
generation is projected to decrease by 2 percent in 2023.

According to a recent report, dry natural gas production in the United States reached an average of
101.6 billion cubic feet per day (Bcf/d) in the first quarter of 2023, signifying a 1.4% increase from the
previous quarter. Mild weather during this period prevented any significant disruptions in
production due to freeze-offs. The report highlights that the rise in U.S. natural gas production can
be attributed to the associated natural gas production from the Permian Basin and the production
from the Haynesville region, which achieved new records earlier this year. The report further
forecasts a slight decline in U.S. natural gas production during April and May, as a result of pipeline
maintenance in West Texas and the Northeast. The projected U.S. natural gas production average for
the remainder of the year is 100.6 Bcf/d. The forecast for the overall U.S. natural gas production
average in 2023 is 100.9 Bcf/d, which is a 3% increase from 2022. However, the report warns that if
natural gas production were to exceed the projected levels, it could lead to a drop in natural gas
prices. Conversely, if natural gas production falls more than expected, it could result in an increase in
prices, all other factors being equal.

From March to May, electricity demand in the US is usually at its lowest. Power plants take
advantage of this time to perform necessary maintenance on their generating units, especially for
thermal plants and nuclear generators. Output from renewable sources, especially wind, usually
increases due to stronger winds. Coal-fired power plants are expected to provide significantly less
generation this spring than in past years, with a forecast of 17% less U.S. coal-fired generation
compared to 2022. Coal plants that retired in the past year will reduce coal-fired generating capacity,
and existing coal generators are expected to operate at lower utilization rates due to lower natural
gas prices.
F&D Partners is evaluating plans for various clients, which may include an index with a fixed retail
adder approach where the energy’s wholesale price moves with the market, while taxes, line loss,
ISO fees, and ancillary services remain steady. Alternatively, a short-term, all-in fixed rate strategy
may also be considered.

On the other hand states like California, Oregon, and Washington have seen a modest decline in
power prices due to high natural gas prices that are 80% higher than Henry Hub, driven by increased
winter heating demand, pipeline constraints, and low hydroelectric power output in some areas.
Meanwhile, PJM’s capacity prices have fallen by 15% in its latest auction, indicating a possible
bottoming of PJM capacity prices, but there have been price increases in some areas due to
transmission constraints and generation retirements. Despite this, gas exports, especially LNG, are
expected to rise this year and next, with exports of 12.1 Bcf/d in 2023, about 14% higher than last year,
according to the U.S. Energy Information Administration.

According to the U.S Energy Information Administration, the demand for electricity in the United
States during the second quarter of 2023 is expected to decrease by approximately 1% compared to
the same period in the previous year. This decline is largely attributed to the expectation of milder
temperatures. It is expected that the Henry Hub natural gas spot price will average around $2.65 per
million British thermal units (MMBtu) during the second quarter of 2023 (2Q23), as natural gas
inventories begin to increase. Natural gas inventories are expected to end the injection season (April-
October) at 3.8 trillion cubic feet, which is 6% higher than the five-year average.
The forecast suggests that with natural gas inventories continuing to remain above the five-year
average in 2023, the prices are expected to average less than $3.00/MMBtu for the year, which is a
significant decrease of over 50% compared to the previous year.
In addition to reduced demand, an increase in renewable energy generation and lower natural gas
prices are expected to contribute to a significant decrease in electric power prices during the second
and third quarters of 2023 compared to the same periods in 2022.

F&D Partners was very successful in navigating one of the most volatile years in the energy markets
by helping our clients save tremendously.

Contact us today for the newest strategies in the energy markets for 2023, 2024 and 2025.