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The Post-Hurricane Rise of Natural Gas

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Natural gas prices

On September 18, 2017, the Henry Hub benchmark natural gas price was reported to be $3.11 per MMBtu (million British thermal units). This reading compares with $3.00 per MMBtu for the previous week (ended September 15). On September 22, 2017, October natural gas futures contract prices settled at $2.96 per MMBtu (million British thermal units).

The US Gulf Coast was hit by Hurricane Harvey on August 26, 2017, while Florida was hit by Hurricane Irma on September 10, 2017. These two hurricanes led to heavy rain and great floods in these regions, while the weather in both regions were expected to be mild in September and October 2017. The cool weather resulted in an increase in natural gas prices.

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Impact of natural gas on coal and utilities

Coal’s market share grows when natural gas prices increase because coal becomes the more economical fuel. But a fall in natural gas prices can lead to a drop in coal’s market share.

Coal producers (KOL) such as Natural Resources Partners (NRP) and Alliance Resource Partners (ARLP) can thus reap positive results with an increase in natural gas prices.

For energy companies (XLU) like Dynegy (DYN) and NRG Energy (NRG), the impact of natural gas price changes is dependent on regulation levels. For regulated utilities, fuel costs are part of the tariff calculations themselves, and so such utilities may not be impacted extensively by natural gas price changes.

However, unregulated electricity prices can always fall due to declines in fuel prices, and this factor tends to put pressure on unregulated power generators.

In the next part, we’ll look at how high crude oil prices are impacting coal producers.

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