Natural gas prices
Natural gas prices increased up until Thursday, April 16, but then retreated on Friday, April 17. Overall, however, natural gas prices posted gains during the week. The Henry Hub benchmark spot price increased to $2.58 per MMBtu (British thermal units in millions), up from $2.56 per MMBtu a week earlier.
During the same period, the front month contract prices increased to $2.59 per MMBtu compared to $2.52 per MMBtu a week earlier.
Why are prices important?
The shale gas boom led to a massive rise in production. It also led to a fall in natural gas prices. As a fuel, natural gas began to compete with coal. It ate market share away from coal in terms of electricity generation.
Natural gas prices and coal’s share of the electricity generation market are related. When natural gas prices rise, coal gains market share. It becomes more economical to burn coal for power generation. A fall in natural gas prices generally leads to a drop in coal’s market share as natural gas is available at cheaper rates.
Impact on coal and utilities
For utilities (XLU) such as PG&E (PCG) and Southern California Edison (EIX), the extent of the impact depends on the regulations in effect. If their contracts are strictly cost plus, they get a fixed return over and above costs, so it doesn’t affect them much. For utilities with fixed-price contracts that get a fixed price irrespective of changes in input costs, the rise in natural gas prices is negative.