ERC Price Benchmark Trends Week Ending: October 7, 2016
The Energy Research Council national average benchmark price for retail electricity dropped again last week (-0.45%) to $0.0738 per kilowatt hour (kWh). Bucking the downward trend, only Texas electricity prices rose last week, by 1.47 percent.
The biggest week-over-week price decline last week was in New York (-1.11%). New York prices are now -2.54% lower than they were one month ago, and appear to be following natural gas prices in the area. At the Transco Zone 6 NY trading point, natural gas prices reached an all-time low of $0.41/MMBtu at the end of September. This is the lowest daily average gas price since NGI started tracking prices at Transco Zone 6 NY in 1998. While New York gas prices have rebounded from this record low, they still appear to be impacting regional electricity prices.
Long-term electricity contracts (36-60 months) were favorably priced last week in Maryland, New Jersey, New York, Pennsylvania, and Texas. Long-term prices in most other deregulated markets carried a premium compared to 12- and 24-month contract terms.
Short-Term Price Benchmark Trends
Mild, above-normal temperatures are forecast for most of the U.S. for the remainder of October and into the first week of November. With the exit of Hurricane Matthew from the East Coast, minimal Atlantic storm activity threatens to impact energy prices. So far this fall, weather has not been a factor regarding energy consumption.
Natural gas prices surged higher at the end of last week, settling at their highest level since January 2015. The prompt month moved progressively higher in each of the last five trading sessions, gaining almost 10% for the week. The prompt month eventually settled on Friday at $3.193/MMBtu, up 14.4 cents for the day. Last week’s gains occurred despite a strong injection of 80 Bcf into storage—the second largest build of the 2016 refill season—and a relatively mild weather forecast.
Bearish fundamentals should have depressed prices, yet natural gas prices continue to rise, indicating a bull market. From a technical perspective, the current trading range for the November 2016 NYMEX natural gas contract is $3.02/MMBtu on the support side and $3.16/MMBtu on the resistance end.
Long-Term Price Benchmark Trends
Summer 2016 began with a 27% year-over-year natural gas storage surplus. At the end of September, working gas stocks were only 2% greater than one year ago, and just 6% greater than the five-year average for the week. A warm summer and sluggish production evaporated the surplus that has tethered natural gas prices below the $3.00/MMBtu mark. According to Point Logic, the average total supply of natural gas decreased by 1% compared to the previous report week. Dry production fell 2% week over week, whereas average net imports from Canada increased 2 percent. Rising gas prices may, however, begin to stimulate production. Last week, Baker Hughes reported that the natural gas drilling rig count increased by four to 96.
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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