Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity decreased slightly last week by -0.2% to $0.0738 per kilowatt hour (kWh). Prices decreased most in Delaware (-1.9%) and Pennsylvania (-1.08%), while prices increased in Texas (+2.26%), New York (+0.51%) and Connecticut (+.59%). Looking back, prices are lower than they were a month ago in every state except Illinois (+0.4%). The month-over-month decline in the average benchmark price for electricity is greatest in Delaware (-3.51%), District of Columbia (-2.9%), Maryland (-2.98%), Pennsylvania (-2.81%) and Ohio (-2.67%).
NOAA’s forecast for the next two weeks is calling for a warming trend of above normal temperatures covering a wide area of the country from the Rocky Mountains to the east coast. The only exceptions are the northwest and the upper north east regions which expect seasonable temperatures. This projection should increase natural gas cooling demand, resulting in further below normal injection levels into inventory over the next several weeks.
Long-Term Price Benchmark Trends
Natural gas prices increased strongly last week as the weather forecasts continue to show a warming trend over major parts of the US. The spot July Nymex contract increased by 10.15 percent or $0.221/mmbtu. From a technical perspective the spot July Nymex contract breached and remains above the previous resistance level of the trading range for the fourth trading session in a row. The new resistance level of the July contract is now at $2.50/mmbtu with the $2.30/mmbtu level now the new support level.
The number of rigs drilling for natural gas dropped by five last week, setting a new record low. The natural gas rig count stands at 82, down 140 from the same time last year, and 274 rigs less than the 356 peak seen in November 2014. Last Friday Baker Hughe’s weekly rig count showed the first increase in oil rigs since mid-March of this year. Oil rigs increased by 9 rigs suggesting that the long term decline in oil sector rigs may be starting to bottom out. This may be a lead indicator of a potential stabilization in the decline of natural gas rigs.
Natural gas production appears to be declining at a faster clip than previously expected as a significant slowing in the Marcellus region has trimmed its output growth to slightly below last year’s levels. So far, slippage in production is a very slow moving driver of upward prices for gas futures. To really have a meaningful impact on electricity prices, we will need to see further declines in Marcellus/Utica natural gas production coupled with a sustained above normal cooling demand based on a hot summer.
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.