ERC Price Benchmarks/Week Ending 4-14-17

 

Energy Research Council’s (ERC) national benchmark price for a May 2017 electricity contract declined last week by 0.27% to $0.0760 per kilowatt hour. The largest price declines were in New York (2.25%), Ohio (1.42%), and Texas (0.88%).  

The national benchmark price is now 1.26% higher than it was a month ago. States with the highest month-over-month price increases include Connecticut (3.41%), Maine (2.17%), and New Jersey (1.96%).

Last week, benchmark prices for longer term (36-60 month) electricity contracts were lower than short-term (12-24 month) contracts in the District of Columbia, Maine, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, and Texas.

Short Term

After an impressive run up of over 30% from February 21st to April 6th, the NYMEX May 2017 natural gas contract pulled back to close on Tueday at $3.145/MMBtu. The unusual price escalation during the shoulder months when demand is low was likely caused by lingering concerns about production which has dropped alomost 3% year-over-year. The technical trading range for the May contract price is now between $2.95/MMBtu on the support side and $3.23/MMBtu on the resistance end.

The latest weather forecast still anticipates 65 percent of the country will continue to experience above-normal temperatures through the remainder of April.  According to the National Oceanic and Atmospheric Administration, there were 18% fewer heating degree days at the end of last week compared to the same week last year, and overall, 17% fewer than normal for the week on average. Even though production continues to languish, lack of weather related demand could push near-term gas futures down as low as $3.05.

Long Term

Natural gas stocks ended the heating season (November through March) at the third highest level in 10 years. Working natural gas stocks are now 2,061 Bcf, which is 17% lower than the year-ago level but 15% higher than the five-year (2012–16) average for this week.

While gas inventories finished last week with a substantial surplus, overall demand weakened considerably. Total U.S. consumption of natural gas fell by 7% compared with the previous report week. Power burn also declined by 5% week-over-week, while industrial sector consumption decreased by 1%. Residential and commercial sector consumption declined by 15%, largely because of the warmer weather. Natural gas exports to Mexico decreased 2% from last week.

With weather’s impact on gas prices diminishing and overall demand slowing, the relatively large gas surplus we have managed to amass should keep prices from further escalation until the summer demand season. Low prices will also keep production from rebounding, at least over the remaining shoulder months. All of this should keep the market treading water until we begin to define cooling demand for the summer.

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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