Short-Term Price Benchmark Trends
The Energy Research Council national average benchmark price for retail electricity increased again last week by 0.28%, to $0.0744 per kilowatt hour (kWh). Prices increased notably in New York (4.56%), and to a lesser extent in Delaware (1.86%) and the District of Columbia (1.18%). Most other deregulated states either saw electricity prices remain unchanged or decline slightly from the previous week.
Electricity prices are now significantly higher than they were one month ago in DC (1.18%), Delaware (1.86%), and New York (5.87%). In contrast, Texas has experienced a month-over-month decline in retail electricity prices of -4.96 percent. Looking back one year ago, the national average benchmark price for electricity has increased 12.86%, from $0.0608 per kilowatt hour (kWh) week ending September 4, 2015, to $0.0744 per kWh last week.
Long-Term Price Benchmark Trends
Natural gas prices are now declining under downside pressure from a short-term (two week) weather forecast projecting above-normal temperatures covering only the eastern 35% of the U.S. Last week saw a much larger-than-expected natural gas storage injection, further strengthening the likelihood of an end-of-season supply that is more than adequate to cover a cold winter.
The total number of natural gas inventory injections in 2016 currently amounts to 933 billion cubic feet (Bcf), compared to 1.729 trillion cubic feet in September 2015. The rate of increase in stocks is 46% below last year, and that means that natural gas is trickling, rather than flowing, into storage.
The natural gas prompt month closed the week at $2.792 per million British thermal units (MMBtu). From a technical perspective, the October 2016 NYBEX natural gas contract boundaries are now around $2.62/MMBtu on the support end, and $2.78/MMBtu on the resistance side. Last year, at the beginning of September, the natural gas price was around 10 cents below last Friday’s mark.
While all of these short-term factors continue to move natural gas (and subsequently electricity) prices within a fairly narrow trading range, the big price driver will be decided on November 8th, when the United States elects its next President. Both candidates ‘energy policies are clear. Democrats favor increased fracking regulations to protect the environment, while Republicans are advocates of energy independence. Less fracking would likely cause the price of natural gas to rise as output would decline. To compensate, prices would need to soar well above $3/MMBtu for producers outside of the Marcellus/Utica regions to bring rigs back online. We are only two months away from knowing which direction we will 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.