ERC Price Benchmark Trends Week Ending: November 11, 2016
The national average benchmark price for a December 2016 electricity contract dropped substantially last week (-2.6%) to $0.0722 per kilowatt hour (kWh). Electricity prices have fluctuated marginally over the past month while gas prices have plummeted. This past week looks like electricity prices have finally moved more in line with the downward trend we have seen in natural gas prices over the past month.
The biggest decline in electricity prices last week occurred in New Jersey (-4.4%), Texas (-3.9%), Delaware (-3.6%), and Connecticut (-3.4%). Every deregulated state posted at least a percent-plus drop last week, the least of which occurred in Ohio (-1.4%). Prices in every state, except the District of Columbia, are now considerably lower than a month ago. Most notably, month-over-month electricity prices have dropped significantly in Texas (-6.6%), Rhode Island (-5.2%), Maine (-5.0%), Connecticut (-5.0%), and Massachusetts (-4.2%).
Last week, longer term (36-60 month) contracts were more favorable than shorter term (12-14 month) contacts in Maryland, New Jersey, Ohio, and Pennsylvania.
Short Term Trend
Above normal temperatures that have prevailed through most of the fall are now expected to continue through the end of November. NOAA’s ten to fourteen day forecast now projects the warming trend to cover about 90 percent of the country. The lack of heating demand has moved natural gas prices progressively lower and extended the injection season. Weather forecasts are beginning to call for more winter-like weather in December which will likely put a floor on gas prices and finally initiate an upward swing in demand.
Natural gas prices declined significantly over the last four weeks. The spot December NYMEX contract has declined from a high of $3.556/MMBtu in the middle of October to close Friday at $2.619/MMBtu (a 26.3% drop). As of Friday, the December contract is just $0.356/MMBtu or 15.7% above where it was on the same day last year.
From a technical perspective, the December contract ended Friday’s trading session in another new lower technical trading range. The spot market seems to be settling back into the broad $2.50/MMBtu to $3/MMBtu trading range that has been mostly in play since the middle of June of this year (with the exception of the first half October rally). The December NYMEX natural gas contract’s new current boundaries are now around $2.625/MMBtu on the resistance side and $2.40/MMBtu on the support end.
Long Term Trends
Net natural gas injections into storage last week marked the first time in 26 weeks that net injections exceeded the five-year average. Working gas stocks now total 4,017 Bcf, a new all-time high, representing 96.9% of total storage capacity. We continue to head for a record supply that could prove some 4-5% above forecasts of a mere month ago. This will act as an inhibitor on sustainable price gains unless next month proves unusually cold. In other words, weather will continue to be the main driver of pricing as the shoulder period wears on.
James Moore, Ph.D., is CEO of the Energy Research Council (ERC). He has been CEO of several research companies, including TDC, a subsidiary of International Thomson; Highline Financial, a Thomson-Reuters company; and Mentis Corporation, which was acquired by Gartner Group. He has also served as Executive Director of The Global Futures Forum, an international think tank, and as Managing Director of Gartner Group’s Global Financial Services practice.
* ERC electricity price benchmarks are derived by: 1) aggregating daily matrix prices issued by many electricity suppliers across General Service tariff rate classes for each electric utility; 2) averaging each utility’s price benchmark together for a state-level benchmark; and 3) averaging state-level benchmarks across five business days to create weekly average price benchmarks, based on next month’s start date, for commercial customers with an annual usage of up to one million kWh. The high level of correlation between matrix and custom pricing makes ERC price benchmarks a reliable measure of how prices are trending, and the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P and Dow measure the rate and direction of change in stock market prices over time.
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