Most states posted a decrease in the average benchmark price for retail electricity last week, led by New York with a decline of almost 2 percent. The notable exceptions to this were Illinois, with an increase of almost 5 percent, and Massachusetts with a 2.1 percent increase over last week.
Even though EIA reported still more additions to natural gas inventories late last week, prompt month natural gas prices continued to climb. This is likely due to cooler weather forecasts over the next eight- to -14-day outlook by NOAA. US demand declined last week but is expected to increase about 70 Bcf/d by the end of this week. This will likely begin to pressure prices upward as we move quickly toward the summer and its historically high seasonal prices for retail electricity.
Looking at contract terms, shorter 12- and 24-month contracts are most favorable in Connecticut, Massachusetts and Maine. Longer-term contracts are most attractive in New York.
Longer-Term Electricity Price Drivers
Mild weather for most of April in the eastern United States has moderated demand and helped electricity prices to stay in a relatively narrow band. Forecasts by NOAA for the summer months are looking at normal seasonal conditions with only weak to moderate effects of El Nino.
Storage of natural gas is at a 75 percent surplus compared to last year, but at an 11 percent deficit compared to the five-year average. Going forward, robust injections will likely lower prices, while maintaining or decreasing surplus will create upward pressure on NYMEX prices.
While production of natural gas is near all time highs as winter ends, all indicators suggest production will slow over the next quarter as rig count reduction, surplus supply and moderate demand take effect. This being said, we are moving into the summer season, which has seen the highest peak in electricity prices over 12 of the last 13 years.
Looking at RTC forward power prices, the forward strips for PJM, NY and ComEd are just off all-time lows. Above average summer heat or confirmation of slower to flat growth in production will pressure forward price curves to increase.
Jim Moore, PhD, is president of the Energy Research Council. ERC manages a portfolio of primary research programs and databases that evaluate energy prices, procurement practices and management strategies.
Jim 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.