Infinity Insights - Volume 14, Issue 15
MONTHLY UPDATE - MAY 2025 EDITION
NATURAL GAS
NYMEX Natural Gas is trading around the $3.60 mark. Spot natural gas had softened March and April and has recovered some ground in early May. Relatively warm weather and robust natural gas inventory injections contributed to the price falling in March and April.
LNG exports continue to grow with Plaquemines LNG’s Louisiana facility’s continued ramp up. Tuesday 5/6 Freeport LNG in Brazoria County, Texas, US’s second largest LNG export facility, experienced a service interruption which led to the shutdown of its liquefaction trains. The facility is expected to gradually come back online and ramp up liquefaction 5/7. It is unknown at this time when service will return to full capacity.
Natural gas inventories continue to grow. Inventories have erased a deficit to the 5-yr average, marking the first surplus vs. the 5-yr since 1/23/2025.
EIA’s most recent Short-Term Energy Outlook (STEO) forecasts rising natural gas prices in the coming months as LNG exports increase and seasonal demand picks up as we approach summer. Henry Hub spot prices is expected to average $4.20/MMBtu in 3Q25. At $4.20 prices would be about double what we saw in 3Q24. Considering the relatively high price, EIA is forecasting less natural gas demand for power generation with generators electing to utilize less expensive fuels. EIA is forecasting a total power generation increase of 2% in 2025 vs. 2024, and notes power from natural gas-fired power plants is expected to decline 3% year-over-year.
Production ticked down slightly vs. the prior week (-.5%), but is materially higher than year-ago production, approximately 4.6% greater.
Spot month natural gas has support at $2.90 with resistance at $4.25.
Calendar year 2025 finds support at $3.95 with resistance at $5.08. Calendar year 2026 has support at $3.94 with resistance at $5.33. Calendar year 2027 has support at $3.35 with resistance at $4.99, a slight increase in prompt year but further discounted at the back of the curve.
Global natural gas prices ($/MMBtu):
Henry Hub (USA): $3.60↓
NBP (UK): $11.21↓
TTF (Dutch) $11.08↓
JKM (Japan/Korea) $11.32↓
Weather
NOAA’s 6-14 Day Temperature Outlooks show above normal temperatures for the east and below normal temperatures for the west. This forecast reflects above normal temperature on a population weighted basis. Drought conditions continue to worsen in the southwest. NOAA is forecasting a slightly warmer than normal summer.
Hurricane season is set to officially begin June 1. Peak hurricane season is mid-September. The table below provides Colorado State University and Tropical Storm Risk’s latest hurricane forecast for the US. Forecasts point to a close to normal hurricane season and considerably less active than the 2024 hurricane season. Ocean heat content in the Main Development Region is slightly elevated vs. 10-yr history and significantly less than the heat content year-over-year.
Howard-Solstice Transmission Line
April 24 the Public Utility of Texas (PUCT) approved construction of the Howard-Solstice Transmission Line Project, a 300 mile 765-kV transmission line to be built by AEP Texas that will transmit electricity from near San Antonio to the Permian Basin. Permian Basin power demand has grown substantially as oil and gas projects have expanded. The Howard-Solstice Transmission Line would mark the first 765-kV line in Texas. ERCOT has used 345-kV lines for high voltage transmission since the 1960’s. There was consideration to expand the existing 345-kV system to meet the growing needs for the region, but a 765-kV system was selected at a $1.4 billion greater cost than expanding the existing 345-kV system. Transmitting 500MW a distance of 300 miles on a 345-kV system yields line losses of about 5%, whereas the same capacity and distance at 765-kV yields significantly less line losses at just .4%. The Howard-Solstice Transmission Line is expected to cost $10 billion, which will be paid for by rate-payers through utility bills. According to ERCOT, the higher-voltage system makes economic sense by reducing long-term costs by increasing efficiency and providing a complete solution instead of piecemeal expansions.
As mentioned, the main purpose of the new high voltage line is to provide power to the Permian Basin. The Permian consumes a significant and growing amount of electricity in Texas. As a result of the topography and weather of the region, the Permian has become a large renewable generating region through wind a solar generation. Additionally, because of the expansive oil and gas operations, natural gas generation has grown in the region to power oil and gas production needs and also reduce the amount of natural gas flaring from the extraction process. An added benefit of the Howard-Solstice Transmission Line could be reversing the flow of power, exporting from the Permian and supplying central Texas. In the event of a major plant failure or natural disaster Permian operations could be curtailed and power exported from the region to serve other locations in Texas.
Our take: We see this as a great step forward for ERCOT and the Texas grid. Other independent system operators (ISO’s) operate with extra high voltage transmission and as Texas and ERCOT lead the country in load growth, it only makes sense that Texas incorporate this more efficient technology. Additionally, ERCOT faces many congestion challenges, extra high voltage transmission helps in reducing congestion. The added geographic diversity adds stability and helps mitigate risks associated with natural disasters and underperforming intermittent renewables.
Capacity Market Auction Results
PJM’s most recent Base Residual Auction results were published July 31, 2024. The results were astonishingly high, clearing at $269.92/MW-day, a 10X increase versus the prior capacity auction. Midcontinent Independent System Operator (MISO) servicing Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisianan, Michigan, Minnesota, Mississippi, Missouri, Montana, North Dakota, South Dakota and Wisconsin published capacity auction results April 28, 2025, again clearing at a very high price of $666.50/MW-day, a 22X increase versus the prior capacity auction.
The high clearing prices are a clear sign that supply and demand throughout the country is tightening. In PJM the tightening supply is attributed to load growth and 6,600 MW of generation retirement, of which 69% of retirements is coal generation. PJM’s peak load forecast increased to 153,883 MW vs. 150,640 MW from the previous year, a 2.15% increase.
Similarly, in MISO there is 3,300 MW in generation retirement, again with the bulk of that being coal generation. MISO’s peak load forecast increased from 122,328 MW to 123,567 MW, a 1% increase year-over-year. What we’ve seen in the last two capacity auctions is not unique. As coal has fallen out of favor because of its associated carbon footprint, coal plant retirements have accelerated. Renewable deployment has accelerated but is not keeping up with coal retirement. The capacity auction results are reflective of this tightening, and with the ongoing trade wars it’s difficult to plan future generation when so many components are imported. We expect capacity auctions to continue yielding high results. Some experts are speculating the high auction results could incentivize generators and system operators to reconsider coal retirements but that’s yet to be seen.
Market News
Consumer sentiment has fallen to the lowest level since June 2022. Equity markets are down 4% YTD, oil is down 19% YTD. Federal Reserve Effective Interest Rate remains unchanged at 4.25-4.50% since December. Fed Chair Powell’s approach remains “wait-and-see” noting the growing uncertainty of tariff policy has increased the risk for both higher inflation and unemployment.
Geopolitical tension continues to grow with western forces applying further pressure on Houthis in Yemen. India and Pakistan appear to be on the brink of war.
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