Last year was a quiet one for natural gas and electricity pricing in the Midwest. However, even with low volatility, there were some developments that could give us an idea of future pricing. From a pricing perspective, a quick look would reveal a price pattern somewhat different than the one that occurred in 2016 when both natural gas and electricity prices bottomed at the end of the 1st quarter. In 2017, forward natural gas sold off at the start of the year and then traded in a fairly tight range until declining further in the last quarter. PJM/ComEd electricity was generally lower on the year depending on the duration of the price being observed.
The monthly day-average Henry Hub natural gas price averaged $2.964 per MMBtu for 2017, a 18.84% increase over the average $2.494 per MMBtu price achieved in 2016. The Chicago City Gate average cash price of $2.909 per MMBtu was a 16.92% improvement over the 2016 price of $2.488 per MMBtu. However, forward prices declined year-on-year across the curve for both Henry Hub and Chicago City Gate. It is important to observe the relative weakness of Chicago City Gate forwards to Henry Hub forwards. This reflects the belief that pipeline expansion into Illinois will continue to pressure that basis relationship. The 2018, 2019, 2020, and 2021 Henry Hub Calendar forwards lost 12.08%, 2.07%, 2.11%, and 2.90%, respectively, to close at $2.73, $2.81, $2.82, and $2.85 per MMBtu. The 2018, 2019, 2020, and 2021 Chicago City Gate forward prices fell 17.48%, 8.11%, 6.57%, and 7.01%, respectively, to close $2.55, $2.56, $2.61, and $2.65 per MMBtu.
