ERC Price Benchmarks Week ending 1-20-17

James Moore, Ph.D

ERC’s national average benchmark price for a March electricity contract remained unchanged last week at $0.0761 per kilowatt hour. The average benchmark price is now 0.77% lower than it was this time last month. Prices declined last week in Texas (-1.5%) and New York (-1.0%), while prices increased in Delaware (1.0% and Illinios (0.9%). The average price for electricity in Texas is now 3.7% below where they were a month ago.

Short Term

The March 2017 NYMEX natural gas contract ended last week at $3.358/MMBtu, which is toward the bottom of its current technical trading range of around $3.553/MMBtu on the resistance side and $3.284/MMBtu on the support side. Most of last week’s gains were primarily due to a changing weather pattern that now projects above normal temperatures moving back toward normal to even below normal temperatures across much of the country. The main gas consuming areas of the country will likely see normal temperatures through the first week of February so demand for natural gas will remain low.

Last Thursday, the Energy Information Administration reported that stockpiles in storage across the US fell by 119 billion cubic feet for the week ending on January 20, 2017. Total stocks stood at 2.798 trillion cubic feet, 11% below last year’s level and 1% below the five year average for this time of year. Warmer-than-normal temperatures throughout most of the Lower 48 states mitigated heating demand for gas and contributed to the below-average withdrawals from storage.

Week-over-week, total U.S. consumption of natural gas fell by 8% last week. In the residential and commercial sectors, consumption declined by 15% to average 31.6 Bcf/d, 36% below the same week in 2016.

Long Term

Although the natural gas rig count increased by 6 to 142 last week, production continues to struggle at just under 71 Bcf/d. From November 2015 through November 2016, US natural gas production fell 5% —marking the first year-over-year decrease in production in more than a decade. Low prices throughout 2016 have made it uneconomical for many producers to keep their doors open. Much of the production has migrated to Marcellus and Utica shale which is cheaper to frack than drilling in other regions of the country. The Marcellus/Utica regions are constrained, however, by insufficient pipeline to export shale gas to other regions of the country. Even with the Trump administration’s anticipated removal of regulations stalling northeast pipeline projects, it won’t be until late 2017 or early 2018 that most of the projects will begin to come online. As the gap between supply and demand gets tighter, gas prices will likely move upward in 2017.

The market anticipates that in 2018 and beyond a resurgence of strong production will provide plenty of supply, keeping prices low as in the front end of 2016. NYMEX calendar strip prices for 2019-2023 delivery remain below $3/MMBtu while the current prompt month price for natural gas is around $3.35/MMBtu. Last week, all of the calendar strips were down, as well, with the 2022 and 2023 calendar strips setting all-time lows again.

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.

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