Natural gas prices
For the week ended September 15, the Henry Hub benchmark natural gas prices came in at $3.04 per MMBtu (million British thermal units). This reading compares to $2.89 per MMBtu for the previous week. On September 15, 2017, October natural gas futures contract prices settled at $2.89 per MMBtu (million British thermal units).
On August 26, 2017, Hurricane Harvey hit the Gulf Coast region. Hurricane Irma then hit Florida on September 10, 2017. The hurricanes led to torrential rain and massive floods, which could also lead to cooler-than-normal weather for the next week. The weather in these regions is expected to be mild in September 2017.
In the previous part, we discussed that the natural gas supply rose by 91 Bcf for the week ended September 8. However, according to the EIA, Hurricane Irma significantly disrupted natural gas markets in Florida.
Impact on coal and utilities
Coal’s market share increases when natural gas prices rise because coal becomes a more economical fuel in that instance. However, a decline in natural gas prices leads to a drop in coal’s market share.
For utilities (XLU) such as NRG Energy (NRG) and Dynegy (DYN), the impact is dependent 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.