Moving to a July prompt month, Energy Research Council’s (ERC) national average benchmark price for electricity rose again last week by 0.29% to $0.0754 per kilowatt hour. The largest price movement was a decline of 1.1% in Illinois. Month-over-month, Illinois electricity prices have dropped by 2.4%; the result of a significant drop in capacity charges. Prices in other deregulated states shifted by only a fraction of a percent last week in either direction.
Last week, benchmark prices for longer term (36-60 month) electricity contracts were again lower than short-term (12-24 month) contracts in the District of Columbia, Maryland, Massachusetts, New Jersey, Ohio, Pennsylania, and Texas.
NYMEX June 2017 natural gas futures closed last week at $3.256/MMBtu, just above the midpoint of the contract’s trading range since mid-March. At the start of this week,the spot June contract declined by almost 5%, even after Friday’s modest gains. From a technical perspective, the spot June contract traded higher on Friday but remained in its lower technical trading range after testing the $3.163/MMBtu support level. The current technical trading range boundaries remain at $3.305/MMBtu on the resistance side and $3.163/MMBtu on the support end.
While it’s too early to call it a trend, U.S. natural gas production may be reversing its steady decline for most of this year, rising to an average of 70.9 Bcf/d for the report week ending May 17th; the highest output level since the first week of January. Domestic natural gas drilling rig counts increased by the largest amount in more than seven months last week. Exploration and production companies (E&Ps) added 8 gas rigs during the week ended May 19th, bringing the total number of active rigs to 180. E&Ps have now added 99 rigs since gas rig counts fell to a 30-year low of 81 rigs last August in response to sustained low prices. Whether last week’s production increase is a short-term blip or we’re on a path to steady growth remains to be seen. A rebound in production is critical to meeting demand which continues to expand across multiple fronts.
Power sector gas demand jumped 10% last week due to a brief hot spell in the eastern half of the country. U.S. natural gas exports to Mexico reached a new all-time single-day high of 4.3 Bcf/d last week as deliveries via pipeline increased 5% week-over-week to average 4.2 Bcf/d (+14% year-over-year).
No significant heat is expected in the U.S. through the end of May, though a brief period of warmer weather is likely in the Midwest and East around the Memorial Day weekend. More than 70 percent of the country is expecting normal to below-normal temperatures heading into the end of the month. This mild temperature pattern will likely limit cooling demand in early June.
Natural gas inventories grew by 68 Bcf to 2,369 Bcf for the report week ended May 12th according to the EIA’s storage report. Natural gas stocks are now 375 Bcf (-13.7%) lower than year-ago levels, but remain at a 256 Bcf (+12.1%) surplus to the five-year average level. Since the start of April, storage injections have totaled 318 Bcf, compared to an average of 327 Bcf over the past five-years and 266 Bcf added during the same period a year ago.
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.