Energy Research Council’s (ERC) national benchmark price for a May 2017 electricity contract has increased for five straight weeks. Last week, it increased .25% to $0.0756 per kilowatt hour and is now 1.23% higher than a month ago. Most states saw only marginal growth in electricity prices last week. Month-over-month, however, prices have increased the most in Connecticut (2.8%), Texas (2.5%), and New York (2.4%). Conversely, prices have declined since the beginning of the month in Illinois (-0.8%) and Delaware (-0.4%).
Last week, the benchmark prices for longer term (36-60 month) electricity contracts were lower than short-term (12-24 month) contracts in the District of Columbia, Maryland, Massachusetts, Ohio, and Pennsylvania. Favorable pricing for longer term electricity contracts has now prevailed in many states for over a month.
As we move into the injection season, the weather forecast is calling for mild temperatures for most of the country well into April. This should boost the natural gas inventory and sustain a moderate surplus over the five-year average for the foreseeable future. Working natural gas stocks are now 2,049 Bcf, which is 17% less than the year-ago level but 14% greater than the five-year (2012–16) average for last week.
Although production continues to decline, averaging only 70.7 Bcf/d this year, low demand from mild weather continues to keep a ceiling on gas prices. Last week, the EIA reported that natural gas consumption fell by 10% compared to the previous week. The NYMEX May 2017 contract settled at $3.128/MMBtu on Monday within a technical trading range of around $2.94/MMBtu on the support side and $3.150/MMBtu on the resistance end. Gas prices have hovered around the $3 mark for almost nine months. Should production continue to decline, and demand from exports and power burn pressure prices upward, it is unlikely that gas will exceed a price cap of $3.25. On the other hand, if production begins to strengthen and weather-related demand remains soft, prices could move downward as low as $2.75.
The EIA announced last week that 13 gigawatts (GW) of natural gas-fired generating capacity is scheduled to come online in 2017, adding to total end-of-2016 natural gas-fired capacity of 431 GW. They expect, however, the share of utility-scale electricity generation from natural gas to fall from an average of 34% in 2016 to 32% in 2017 as a result of higher natural gas prices. The natural gas share of generation is expected to rise slightly to 33% in 2018.
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.