Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity increased 1.4% last week to $0.0736 per kilowatt hour (kWh). Prices increased in each deregulated market. New England states experienced the largest jumps in pricing, with Connecticut increasing 2.7%, Maine increasing 2.1%, and Rhode Island increasing 2.0 percent. Despite a 1.8% price increase in Texas, the Lone Star State remains the deregulated market in the U.S. with the lowest average benchmark price for retail electricity, 0.041 cents per kWh. Massachusetts is the state with the highest benchmark price, 0.096 cents per kWh.
The National Oceanic and Atmospheric Administration six-to-ten day outlook projects above-normal temperatures to extend over much of the U.S., from the west to the Northeast. The rest of the U.S. expects mostly normal temperatures. The eight-to-fourteen day forecast projects about two-thirds of the U.S. will have above-normal temperatures into the middle of May. This seasonable warming trend should minimize further heating demand and increase natural gas storage injections accordingly.
Long-Term Price Benchmark Trends
The June 2016 NYMEX natural gas contract price is currently trading in the lower half of its technical range, after steadily declining through most of last week. The spot contract price has lost its upside momentum. Unless cooler weather emerges to increase heating demand, the spot contract price could test the lower support range in the near future. The market is currently trading in the lower half of a range bound on the upside at around $2.30 per million Brigit thermal units (MMBtu) and the low support side of $2.01/MMBtu.
According to oilfield services company Baker Hughes, total rig counts decreased sharply again last week, falling by 11 to reach a record low of 420. The current total rig count is now 485 below last year at this time, and 1,511 less than the all-time high of 1,931 operating rigs in September 2014. While most of the decline reflects a drop in oil rigs, natural gas rigs are down to 87, the lowest number since record keeping began in July 1987. Natural gas rigs are down 269 from their peak in 2014, and are 135 less than this time last year.
Mild weather and the huge amount of natural gas in storage are creating downward pressure on natural gas prices, and subsequently retail electricity prices. Growing concerns about slowing production and the producer community’s ability to respond to a spike in demand are keeping prices in a relatively tight trading range. If temperatures heat up this summer and create early and sustained cooling demand, we can expect price rallies to follow.
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.