ERC Price Benchmarks, Week ending 6-2-17

Energy Research Council’s (ERC) national average benchmark price for electricity declined sharply last week, dropping by 1.8% to $0.0746 per kilowatt hour. Prices decreased in every deregulated territory, with the biggest declines in Connecticut (-2.8%), the District of Columbia (-2.3%), Maine (-2.2%), and Rhode Island (-2.1%).

Month-over-month, electricity prices are now roughly 1% lower in Maine, New Jersey, New York, Texas, Delaware, Connecticut, Illinois, and Rhode Island.

Last week, benchmark prices for longer term (36-60 month) electricity contracts were again lower than short-term (12-24 month) contracts in Massachusetts, New Jersey, Ohio, and Pennsylvania. As in past weeks, longer term electricity contracts result from forward power prices that are hovering under 5% of their all-time lows in PJM, MISO and ERCOT.

The July 2017 natural gas contract dropped 9.4% last week, bringing it to the important support level of $3/MMBtu. That puts spot July prices in a technical trading range of $3.08/MMBtu on the resistance side and $2.90/MMBtu on the support side.

Cooler spring temperatures that have pressured gas prices downward over the past two weeks now appear to be cycling out of the 14-day forecast. Above-average temperatures are expected within 75% of the Eastern U.S. by the second week in June. This should increase power burn and limit larger injections into storage as we transition into summer. Storage now stands at 2,525 Bcf, widening the gap from year ago levels to -370 Bcf (-13%) and further shrinking the surplus to the five-year average, now at 225 Bcf (+11%).

Consistent with last week’s price drop, overall demand for natural gas was down. Total U.S. consumption of natural gas fell by 5% below the previous report week. Power burn declined by 6% week-over-week as moderate temperatures limited cooling demand in parts of the country. Power burn was also 19% below the same week last year. Industrial sector consumption decreased by 1% week-over-week. In the residential and commercial sectors, consumption declined by 11%, but was still 16% higher than the same week last year. Natural gas exports to Mexico decreased 6% and LNG exports were flat week-over-week.

The most noteworthy event of the past week is production’s turnaround. After declining for most of this year, production is trending slightly upward, driven primarily by increased activity in the Permian Basin of Texas. Permian producers are interested in oil that costs less than $35-$40/bbl to extract. With the oil, however, comes the “associated” gas output which will either satisfy Mexico and LNG export demand or summer power generation in the Gulf region.

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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