Have the Hurricanes Affected Natural Gas Prices?
Natural gas prices
For the week ended September 8, 2017, Henry Hub benchmark natural gas prices came in at $2.89 per MMBtu (million British thermal unit). That compares to $3.07 per MMBtu in the previous week.
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Texas was hit by Hurricane Harvey on August 25, 2017, and then Hurricane Irma hit Florida on September 9, 2017. The hurricanes led to torrential rain and massive flooding, which could lead to cooler-than-normal weather for the next week. The weather is expected to be mild in September 2017, which could lead to lower demand for natural gas from power plants.
In the previous part of this series, we saw that the natural gas supply rose 65.0 Bcf (billion cubic feet) for the week ended September 1, 2017. On September 8, 2017, the price of natural gas settled at $2.89 per MMBtu. The price fell since demand was lower than supply.
Impact on coal and utilities
Coal’s market share increases when natural gas prices rise because coal then becomes a more economical fuel. But a decline in natural gas prices generally leads to a fall in coal’s market share.
For utilities (XLU) such as NRG Energy (NRG) and Dynegy (DYN), the impact depends on the level of regulation. For regulated utilities, the impact is negligible since the cost of fuel is part of the tariff calculations. However, unregulated electricity prices fall due to weak fuel prices, thus putting pressure on unregulated power producers.
Next, let’s look at the impact of high crude oil prices on coal producers.