Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity declined for the fourth week in a row by 0.087% week-over-week, to $0.0731 per kilowatt hour. Benchmark prices fell the most in Maine (-1.99%), Rhode Island (-1.73%), New York (-1.58%), and Connecticut (-1.55%). The benchmark electricity price in Connecticut is now -8.66% lower than just one month ago. Likewise, prices in New York (-5.87%), Rhode Island (-5.55%), and Maine (-5.40%) are substantially below last month’s benchmarks.
Benchmark prices for long-term (36-60 month) electricity contracts were comparable to short-term (12-24 months) contracts last week in Maryland, New York, and Texas. Short-term contracts were significantly lower than long-term contracts in all other deregulated states.
Although many regions across the U.S. are expecting warmer-than-normal conditions to continue, an increasing portion of the U.S. is forecast to experience normal temperatures during the next two weeks. This would result in further narrowing of demand for natural gas as we head toward the end of summer.
The six-to-fourteen day forecast shows signs of the heatwave moderating in various parts of the U.S., with above-normal temperatures over about 75% of the U.S. The rest of the country expects to experience normal weather.
Long-Term Price Benchmark Trends
It has been longer than one year since the price for natural gas has traded above the $3 per million British thermal units (MMBtu) level. The last time we witnessed gas trading at this level was in May of 2015.
The current natural gas storage surplus is about half of that seen earlier this year. With a moderating weather forecast, storage levels are likely to continue to decline through the rest of this season’s storage injection cycle. Even so, the remaining surplus appears sufficient to restrict sustainable price advances.
This summer’s upswing in drilling rig counts may signal stronger natural gas production late in the summer/early fall period than previously anticipated. And, with this year’s hurricane season proving to be exceptionally quiet, any threats to U.S. production because of weather have been negligible.
Natural gas prices are unlikely to recede all the way back into the $2.50 /MMBtu range. It is equally unlikely we will see a spike through the $3.00 resistance level. Given current conditions, we are most likely so see continuing vacillation within a relatively narrow trading range.
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.