Short-Term Price Benchmark* Trends
Following natural gas prices, the ERC benchmark price for retail electricity continued its decline last week to a new low of $.0731 per kilowatt hour (kWh). The biggest drops in electricity prices were in Rhode Island (-2.01 percent) and Texas (-1.83 percent). Notable price declines also occurred in Maine (-1.77 percent) and Connecticut (-1.06 percent).
Electricity prices for shorter 12- and 24-month contracts are now more favorable than longer 36- and 48-month contracts in all of the 13 restructured states. The longer term markets have been moving slightly higher on concerns about slowing production and increasing demand (new gas-fired power plants and LNG exports).
Nat Gas prices decreased strongly last week after a spat of warmer than normal temperatures. The spot Jan Nymex contract decreased by 11.12 percent or $0.221/mmbtu on the week. On December 14, NYMEX touched a 14-year low, closing at $1.795. That’s the lowest close since the market reached $1.76/MMBtu in 2001. With natural gas prices continuing to decline, the next support level below $1.76 would be at $1.62/MMBtu — a price point we have not seen since February 1999.
Long-Term Price Benchmark Trends
The latest NOAA six-to-ten day and eight-to-fourteen day forecasts are still projecting that very mild temperatures will continue over a majority of the US. In the primary gas heating area of the US, temperatures are projected to be significantly above normal, with mild temperatures now forecast into early January.
This December will end up as the warmest on a gas weighted heating degree day basis since at least 1950. The latest data show a sea-surface temperature anomaly of +2.8 degrees Celsius in the tropical Pacific. This places the current El Niño well into the strong category (+1.5 Celsius and greater is considered a strong El Niño) and very close to the super strong El Niño of 1997–1998. Although this strong El Niño is starting to weaken, it will not weaken fast enough to introduce any risk of depleating current gas storage levels.
Storage inventories reached an all-time record high of 4,009 Bcf. on November 20 — a surplus of 16 percent to compared to last year and 6.7 percent compared to the 5-year average. It is looking likely that the US will have more than 3,700 Bcf of gas in storage at the end of the year. And with little cold weather on the horizon, the storage overhang could continue to grow until the end of heating season. The market’s focus is now turning to end of March storage levels, with 2,000 Bcf a key metric. The EIA is forecasting storage levels at the end of the withdrawal season to be 1,862 Bcf, or 15 percent above the five-year average.
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.