Slide 18 of 19
- The surge in spot prices at the Henry Hub since April has taken prices well above a typical range for 1998-1999 (in this context, defined as the average, +/- 2 standard deviations)
- The upper bound on the typical range for 1998-99 is less than one-third of recent spot prices.
- The Henry Hub spot price spiked at $10.53 per MMBtu on December 29.
- Reasons for the price run-up include:
- relatively flat natural gas production for several years
- increased demand for natural gas as the economy has grown, especially from the electricity generating sector
- expectations for a colder winter than experienced in the last few years (generally borne out so far this heating season)
- low levels of natural gas in storage
- high prices for oil limiting the economic incentive to switch to petroleum-based fuels
- Natural gas spot prices have dropped in the past few weeks, with Henry Hub falling under $7 per MMBtu on January 24.