ERC Price Benchmarks: Week Ending 6-23-17

Energy Research Council’s (ERC) national average benchmark price for electricity changed marginally last week, declining just 0.2% to $0.0731 per kilowatt hour.  Only New York shifted noticeably, increasing week-over-week by 1.2%. Prices in Texas also rose last week by 0.9%.

The national average electricity price is now 3.8% lower than it was this time last month. Month-over-month electricity prices are significantly lower in every deregulated territory, with Massachusetts (-5.7%), New York (-5.2%), the District of Columbia (-4.9%), Connecticut (-4.5%), Rhode Island (-4.4%), and Maine (-4.2%) showing the largest declines.

Last week, benchmark prices for longer term (36-60 month) electricity contracts were lower than short-term (12-24 month) contracts in Massachusetts, New Jersey, Ohio, and Pennsylvania. Lower prices for longer term contracts continue to reflect more favorable pricing for Calendar 2020-2025 natural gas strips compared to the closer 2017-2019 strips.

NYMEX natural gas futures prices for July ended last week at $2.929/MMBtu, which is the lowest prompt month price since early March. However, July gas futures jumped above the important $3/MMBtu mark to $3.046/MMBtu on Tuesday’s news of a warmer weather forecast. The current technical trading range boundaries are now at $2.90/MMBtu on the support side and $3.08/MMBtu on the resistance end, but we are poised to break into a new higher technical range this week. With the advent of summer temperatures, the incoming August prompt month will likely see future prices rally upward into the $3.20-3.25 range.

So far, a cool spring and early summer have kept storage 8% above the five-year average. The end-of-season storage projection has accordingly been revised up to 3.84 Tcf. If the most recent projection holds true, storage will contain a healthy level of natural gas in inventory as we head into the winter months.

A warming trend is continuing around major parts of the country, and above-normal temperatures are expected across 90% of the U.S., particularly in high population areas. The below-normal temperatures are concentrated in a few small pockets in the six-to-ten day forecast. Natural gas related summer cooling demand is now starting to look like it will gain some traction. The eight-to-fourteen day forecast is more supportive than the short-term forecast with above-normal temperatures projected over most of the U.S.

Total U.S. consumption of natural gas rose by 2% compared with the previous report week, according to data from PointLogic. Power burn climbed by 5% week-over-week as the Western U.S. experienced temperatures above seasonal norms. Industrial sector consumption stayed constant, while residential and commercial consumption also remained at last week’s levels. Natural gas exports to Mexico averaged 7% lower than the previous period, with maintenance reducing flows on the Los Ramones II pipeline. Finally, LNG exports dropped off as the Gulf Coast recovered from tropical storm Cindy. (See charts below.)

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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