Short-Term Price Benchmark Trends
The national average benchmark price for retail electricity decreased last week by -2.3% to $.0732 per kilowatt hour (kWh). The largest price decreases were in Pennsylvania (-4.1%), Texas (-3.6%), and New Jersey (-3.4%). The only deregulated state where prices slightly increased was Massachusetts (1.1%).
The latest NOAA weather overview calls for a warming trend to overtake the eastern two-thirds of the US by next week. Above normal temperatures are forecast to remain across the eastern two thirds of the US into the first week of February. The El Nino weather pattern is driving this lastest round of unseasonably warm weather, right in the heart of the winter heating season.
Long-Term Price Benchmark Trends
EIA’s January 21st storage report shows a draw on natural gas storage of of 178 BCF, which was below expectations. Storage now stands almost 24 percent above last year and nearly 17percent above the five year average. In addition, imported gas from Canada is declining while exports to Mexico are increasing. All this aurgues for storage levels to be well above average as we move out of winter and begin to re-enter the injection season at the end of March.
As a counterpoint to storage levels, production is beginning to slow with the rig count now half of what it was in 2015, and down 80% from its all time high in 2008. The EIA is also now forecasting the US to be a net exporter of natural gas by mid-2017. This is somewhat earlier than originally visioned and will likely pressure domestic gas prices upward as the domestic natural gas market begins to merge with the higher priced world market.
Nevertheless, UBS has recently lowered their 2016-19 & long-term, normalised natural gas price forecasts ($/MMBtu) to $2.45, $2.75, $3.00, & $3.25, respectively, from $3.25, $3.75, $4.00, & $4.00. UBS now forecasts “2016 suffering from the overhang of a material storage surplus, as well as a more tempered long-term demand growth outlook coupled with the ability to meet demand growth with prices well below $4/MMBtu.”
Jim Moore, PhD, is president of the Energy Research Council. ERC manages a portfolio of primary research programs and databases that evaluate energy prices, procurement practices and management strategies.
Jim 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.
*The weekly average price benchmarks are derived from a standardized database of daily matrix prices issued by many electricity suppliers. The database is updated every business day and includes prices issued from September 2013 forward. The benchmarks are derived by aggregating individual supplier prices across the General Service tariff rate classes for each electric utility, and then averaging the utility price benchmarks together for a state level benchmark. Finally, these state level benchmarks are averaged across the five business days of each week to create the weekly average price benchmarks by state. These benchmarks reflect the average prices for General Service tariff rate classes by utility and state, based on next month’s start date. As mentioned, these benchmarks are based on matrix prices for commercial customers with an annual usage of up to 1 million kWh. While they are not a valid measure of pricing for larger C&I customers, the high level of correlation between matrix and custom pricing make the benchmarks a reliable measure of how prices are trending, as well as the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P or Dow measures the rate and direction of change in stock market prices over time.