Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity increased last week to $0.0735 per kilowatt hour (kWh). Prices decreased 2.4% in Texas, which is the only deregulated market in the U.S. that experienced a price decrease last week. In Texas, the benchmark price for retail electricity last week remained the lowest in the U.S., $0.0413/kWh. Prices increased the most last week in Maine, jumping 2.3% to 0.0821/kWh. Massachusetts remains the market with the highest benchmark price, 0.0988/kWh.
Above-normal temperatures, mostly confined to the East Coast and parts of western regions, are forecast to cover only about 25% or so of the U.S. into the first week of September. Even so, the heat is concentrating on areas of high population. High temperatures as seen in the ERCOT service territory. The market appears to be injecting some storm premium, as a couple of systems are reportedly developing within the Central Atlantic region. The impact will depend on how storm activity affects cooling temperatures in the mid-continent and East Coast regions.
From a technical perspective, the September2016 NYMEX natural gas contract boundaries are around $2.60 per million British thermal units (MMBtu) on the support end, and $2.75/MMBtu on the resistance side. During the past few days, the market appeared to be forming a short-term bottom with the contract breaching the range resistance level of around $2.60/MMBtu.
Long-Term Price Benchmark Trends
Last Friday, the National Oceanic and Atmospheric Administration released its long-term forecast for October 2016 through March 2017. It anticipates a relatively moderate
upcoming winter season. In fact, for key natural gas consuming regions in the U.S., (Midwest and East Coast), the first half of winter is projected to be warmer than normal, while the second half of the heating season is likely to be normal with pockets of below-normal temperatures.
Stronger-than-anticipated natural gas production is gaining momentum from this summer’s 28% upswing in rig counts. A higher natural gas market price than last spring is also supporting production. Levels are topping 72 billion cubic feet per day for the first time since May.
The fact that storage capacity may now be enough to handle projected injections earmarked for storage should minimize any price spikes. Additional seasonal storage gains should culminate in an end-of-season supply slightly greater than four trillion cubic feet, which would represent a record. All of this suggests we will not see a sustained upward trajectory in gas prices for the foreseeable future. At the same time, prices are unlikely to trend downward. We will likely see gas prices fluctuate in this general range until conditions change in the production or demand spheres.
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.