ERC Price Benchmark Trends Week Ending: September 9, 2016
Short-Term Price Benchmark Trends
After rising for three straight weeks, the Energy Research Council national average benchmark price for retail electricity declined last week by -1.84%, to $0.0730 per kilowatt hour (kWh). With last week’s drop, electricity prices are only 0.34% higher than this time one month ago.
Prices decreased most notably last week in New York (-5.60%), and to a lesser extent in Maryland (-2.61%), Delaware (-2.54%), and New Jersey (-2.52%). Every deregulated state saw electricity prices drop from the previous week. Electricity prices are still higher than they were one month ago in Maine (3.74%), the District of Columbia (2.36%), and Rhode Island (1.84%). In contrast, Texas has experienced a -4.89% month-over-month decline in retail electricity prices.
Long-Term Price Benchmark Trends
After a bumpy week, the NYMEX natural gas prompt contract ultimately ended last week unchanged at $2.80 per million British thermal units. Prices rose sharply toward the end of last week, based on hot weather forecasts and a weak injection into natural gas storage. From a technical perspective, the October 2016 NYMEX natural gas contract boundaries are now around $2.782/MMBtu on the support end, and $2.925/MMBtu on the resistance side. This trading range has been in play since the middle of August. The 12-month natural gas strip has mostly been between $2.90 and $3.10 since the summer began, and we’re still in that range.
Except for the Marcellus/Utica regions, most producers are not making any money with natural gas prices below $3.00/MMBtu. Natural gas traded to highs of $3.022 on July 1st, but failed to sustain momentum. Since then, the market has attempted to breach the $3.00 mark twice, but with the same result. Over the past 26 years, the natural gas futures market has spent little time below the $3.00 level. Natural gas is a volatile market. Presently, more pressure is on prices going up than going down.
The summer began with a 27% year-over-year natural gas storage surplus. By this time last year, the injection season had added a total of 1.801 trillion cubic feet to stocks. But because of prices below $3.00/MMBtu, injections have declined by 46% on a year-over-year basis. Moreover, inventories that just a few months ago had been as high as 50%+ above last year’s level and the five-year average are in the single digits for the first time this year. While a natural gas surplus continues to exist, low prices have significantly reduced production, and subsequently, inventories we are carrying into this winter.
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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