ERC Price Benchmark Trends Week Ending: September 30, 2016
The Energy Research Council national average benchmark price last week for a November 2016 electricity contract remained virtually unchanged (-0.21%) from the previous week at $0.0741 per kilowatt hour (kWh). While most deregulated markets had little week-over-week fluctuation in their average benchmark price, Texas posted a significant decline of -2.35%, to $0.0402 per kilowatt hour. On a month-over -month basis, New York reflects the largest price drop (-6.99%), with an average benchmark price last week of $0.0641 per kilowatt hour.
The national benchmark electricity price for a November 2016 contract is -4.5% lower than this time last year. Looking over the past 36 months, the ERC national benchmark electricity price is near where it was at the end of September 2013, just prior to spiking up almost 40% in January 2014 as the result of that winter’s Polar Vortex weather patterns.
Short-Term Price Benchmark Trends
September 2016 is coming in as the second warmest since 1950 on a national basis. Above-normal temperatures are expected to extend into the third week of October. The weather factor, however, is becoming irrelevant as the advent of fall reduces expectations of either cooling or heating demand days requiring above-normal natural gas usage.
As was the case for the majority of September 2016, the spot NYMEX futures contract has been unable to remain above the psychological $3.00/MMBtu for any length of time. From a technical perspective, the November 2016 NYMEX natural gas contract’s current boundaries are around $2.92/MMBtu on the resistance end, and $2.80/MMBtu on the support side. The most likely course for the coming month is price consolidation developing between $2.90 and $3.20 per MMBtu, unless hurricane activity or pipeline disruption makes an impact.
Long-Term Price Benchmark Trends
For 20 consecutive weeks, storage injections have been below both year-ago and five-year average levels. Storage is at a record high in 2016, but the surplus continues to dwindle to +140 billion cubic feet (Bcf), which is 4% above the year-ago level, and 8% above the five-year average. NYMEX natural gas prices for the coming winter have gained 28 cents month-over-month to reach $3.35/MMBtu, as storage inventories are on pace to end October closer to 3.9 trillion cubic feet than 4.0 trillion cubic feet, ahead of what is expected to be a colder winter than last year.
Closing out September 2016, U.S. natural gas production has averaged 72.1 Bcf/day, a 1% decline month-over-month and 2% decline from the same period one year ago. Low gas prices, tropical storm activity and scheduled maintenance in the Gulf region have driven lower natural gas output.
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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