Short-Term Price Benchmark Trends
Based on a contract start date of November 2016, the national average benchmark price for retail electricity last week was $0.0741 per kilowatt hour (kWh). Price fluctuations were minimal in each deregulated market, except Texas, which increased 1.2% last week to $0.0407/kWh. However, the Lone Star State remains the market with the lowest electricity price. The market with the second-lowest average benchmark price was Ohio, where prices were $0.0557/kWh last week. Prices were highest in Massachusetts, $0.0999/kWh, with most New England markets measuring comparatively high prices, as well. The average benchmark price for a November 2016 electricity contract has fluctuated during the past year, from a high point in December 2015 to last week’s price, which was only 3% lower than one year ago.
Long-term electricity contracts (36-60 months) were favorably priced last week in Maryland, New Jersey, Pennsylvania, and Texas. Long-term prices in most other deregulated states moved upward from the previous week.
After trading above the $3.00/MMBtu mark at different times last week, the October 2016 NYMEX natural gas (NG) futures closed the week at $2.955/MMBtu. The NG prompt contract price has been rising since early August, when weather forecasts began indicating that summer heat would linger. Sustained above-normal temperatures continue to drive cooling demand, which limits injections into storage. The result is that NG prices continue to fluctuate within a relatively small range, with little indication of a breakout.
Long-Term Price Benchmark Trends
As we slip into the shoulder season, 23.7 GW of nuclear capacity at 23 plants will go offline for refueling. This compares to 30.9 GW of nuclear generation offline for refueling last autumn. At the same time, many plants will begin retooling their operations for the winter season. With production continuing to be relatively stagnant, only the NG storage surplus is holding back prices. Should storage be further reduced, and we experience a cold winter, NG prices and electricity prices could increase significantly.
For the week ending September 16th, the natural gas drilling rig count decreased by three to 89. Overall, gas production continues to remain sluggish. Net injections into working natural gas storage totaled only 52 billion cubic feet (Bcf) last week. Working gas stocks are now 3,499 Bcf, which is 4% more than the year-ago level, and 8% more than the five-year average for the week. According to data from PointLogic, the average total supply of natural gas fell 1% compared to the previous report week. Dry natural gas production decreased 1% from the last report week. Average net imports from Canada decreased two percent.
The Old Farmer’s Almanac is forecasting a cold winter for 2017 for the United States. The National Oceanic and Atmospheric Administration is measuring substantially warmer-than-normal sea surface temperatures in the Gulf of Alaska, which contributed to extremely cold winters in the past. If the Old Farmer’s Almanac forecast is close to accurate, the current natural gas storage surplus could quickly dissipate and drive up gas prices.
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.