ERC Price Benchmark Trends Week Ending: July 15, 2016

Short-Term Price Benchmark Trends

ERC’s average national benchmark price for retail electricity this week showed no change from last week’s benchmark price of $0.0755 per kilowatt hour. There was, however, meaningful change at the state level. Prices increased in the District of Columbia (+3.20%) and Delaware (+2.26%) while prices in Texas (-1.76% and Connecticut (-1.59%) declined.

The short-to-medium term NOAA weather forecasts continue to call for warmer-than-normal temperatures across most (90%) of the country. The market, however, seems to have grown accustomed to the hot summer and factored a continuing heat wave into natural gas prices. 

The current trading range for spot Nymex natural gas contracts is between $2.80/mmbtu on the resistance end and $2.65/mmbtu on the support side. Although the measure of storage-surpluse-compared-to-historical-averages has been shrinking weekly due to a string of weak injections, natural gas prices have been unable to break through the psychologically important $3.00 level.  For now, the combination of hot weather and high cooling demand seems to be trumped by a shrinking, but still historically high, natural gas surplus.

Long-Term Price Benchmark Trends

Although high cooling demand has limited natural gas injections into inventory this summer, current supply levels are now likely to be around 4 tcf come late November.  This would generate conditions consistent with gas values closer to $2.50-$2.75 range rather than the $3.00+ level. This, of course, discounts any volatility from an active hurricane season that tends to peak in late August through September.

Natural gas production continues to tread water even though prices have moved from $1.16 per MM/Btu in March to the $2.70 range today.  The break-even price for producers in the Marcellus and Utica shale region is well below $3/MMBtu. While the break-even economics of the Marcellus are impressive, it is only 30 percent of U.S production. In addition, some of this new production could be constrained by pipeline capacity. In Texas, $3/MMBtu prices would likely increase output in low cost areas of the of the region, but still keep rigs shut down in most other parts of Texas, Oklahoma, and Los Angeles. The transportation costs of moving Gulf Coast gas north or moving Northeast gas south combine with all the other factors may mean that prices will increase to $4/mmBTU before full production is resumed.

Price Benchmarks Wk Ending 7-15-16Price Benchmarks by Contract Term Wk Ending 7-15-16

Price Benchmarks National Average Wk Ending 7-15-16Price Benchmark Changes Wk Ending 7-15-16

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