ERC’s national average benchmark price for a January electricity contract jumped last week by 3.3%, to $0.0763 per kilowatt hour (kWh). The national average benchmark price is now 5% higher than a month ago. Last week electricity prices posted their strongest gains in Connecticut (5.2%), Maine (4.6%), Rhode Island (4.6%), and New York (4.2%).
Month-over-month, electricity prices are up substantially in almost every state, with the most significant increases in Connecticut (9%), Texas (6.7%). Maine 6.5%), and Rhode Island (6.3%). Nationally, electricity prices are 5% higher today than just a month ago.
Last week, longer term (36-60 month) contracts were more favorable than shorter term (12-14 month) contacts in Maryland, New Jersey, Ohio, Pennsylvania and Texas.
Short Term Trend
As last week, the spike in retail electricity prices parallels a significant surge in natural gas prices. Natural gas has now rallied from $2.722 on November 9 to a two-year-high of $3.75/MMBtu on Friday; an increase of 39% in just one month. The spot NYMEX futures contract is now closer to testing the $4/MMBtu level than it is moving back to the $3/MMBtu level. From a technical perspective, the January contract ended Friday’s trading session in a new higher technical trading range that has not been in play since the end of 2014. The January NYMEX natural gas contract’s current boundaries are now around $3.674/MMBtu on the support side and $4/MMBtu on the resistance end.
The six-to-ten day forecast is projecting very cold temperatures over most the country, at least through the third week of December. The eight-to-fourteen day forecast is not as severe as the short-term outlook, with slightly warmer temperatures across the Southeast. Overall, however, strong heating demand is expected through most of December.
Long Term Trends
According to PointLogic, cold temperatures drove the total U.S. consumption of natural gas up by 15% last week. At the same time, dry natural gas production decreased by 1% with flat production in the Marcellus region, which contributes about 50% of domestic supply.
Cold temperatures should translate into larger than normal withdrawals, possibly extending into next month. With heating demand up and production stagnate, it is conceivable that the long standing natural gas surplus (which has kept gas values below the $3.00 level through most of last month) could disappear with a deficit developing by next month. It will all depend on whether the Polar Vortex continues to extend itself into the US or retreat into Canada. The market appears to be betting on a warming trend as the longer-term gas calendar strip prices have not spiked upward like the near-term January contract has.
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.