Natural gas prices down big - except 2021

Mike Zaccardi, CFA, CMT

Utilities closely monitor natural gas prices. Of all commodities nowadays, natural gas is perhaps the biggest overall driver of power prices. Coal is on the decline, nuclear is stagnant, wind & solar are still a somewhat small piece of the generation pie; so natural gas for electricity generation is huge.

This is a time of year when renewable generation begins to fall – mainly wind. Frontal boundaries don’t have the vigor they do in March and April, so less wind kicks up across the wind farms of the Great Plains. Solar is still strong of course. Hydro also starts to taper somewhat as snow-melt runoff eases and the Midwest begins to dry out.

So natural gas is very important during the hottest weeks of summer when we all have our ACs cranked up. What are NG prices doing on the forward curve? It’s been an interesting year.

I took a look at three natural gas monthly contracts – June 2020 (the prompt-month), June 2021 and June 2028. The price of nat gas for delivery next month are down about 30% year-over-year while June of 2028 prices are also down about 30% - big moves. What’s fascinating though is June 2021 natural gas is flat. Why is this?

COVID-19 sent shockwaves through the economic system. Oil prices cratered, then major oil producers announced massive output cuts. This is concerning for the natural gas market because that also means less in the way of natural gas production. So supply may be shrinking. It is seen as a transitory feature of the market though since longer-dated contracts (i.e. June 2028) are still making all-time lows.

What does this mean for utilities? If they have not properly managed risk, they could be paying a bigger price tag for natural gas deliveries next year. But more likely, those needing natural gas for electricity generation have been hedging by purchasing in the forward market to reduce risk.

Chart used with permission from

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