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ERC Price Benchmarks Week ending 2-10-17

Energy Research Council’s (ERC) national average benchmark price for a March electricity contract held steady last week at $0.0757 per kilowatt hour. Month over month the benchmark price has dropped only 0.2% since the week ending January 13th. Last week benchmark prices declined in Illinois (-0.8%), Texas (-0.7%), and Delaware (-0.7%). Conversely, electricity prices rose in New York (0.8%), Rhode Island (0.7%) and New Jersey (0.5%).

Over the past 12 months, the benchmark price for a March 2017 electricity contract reached a low price point at the end of November 2016 and is now approximately 2-3% higher than a year ago. The price curve for the March 2017 contract reached a high in mid-April of last year, rising 8% since the beginning of March 2016.

In many states, the benchmark price for longer term electricity contracts (36-60 month terms) is lower than short term contracts.

Short Term

A warming trend of spring-like temperatures over most of the country is now forecast to extend through the end of February. The decline in heating demand has driven the March NYMEX natural gas contract down 11% over the past two weeks and 23% since late December. With less than a third of the winter heating season left it seems the market is running out of enough cold weather to fuel a major winter price rally for the second year in a row.

Last week the March NYMEX contract tested but did not breach the important $3/MMBtu support level. Based on the latest round of short term temperature forecasts, however, it is likely that the spot contract will penetrate the $3/MMBtu level in the near future. The March NYMEX natural gas contract’s current technical boundaries are now around $3.107/MMBtu on the resistance side and $2.90/MMBtu on the support side. This trading range has been in play for most of 2017.

Long Term

Suppressed heating demand and accelerating pipeline construction into the Marcellus/Utica shale region is building expectations of a very healthy storage picture for next winter. Natural gas calendar strips for 2018-2021 remain backwardated, selling at a lower price than the closer 2017 strip. Calendars 2019 and 2020 are within 10% of their all-time low price point established in February of 2016. An increase in domestic surplus, when combined with the fact that Canadian natural gas storage is above the five-year average, will likely push Canadian gas net imports higher in the coming months.

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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