Short-Term Price Benchmark Trends
Retail electricity prices remained relatively unchanged last week. The national average benchmark price for retail electricity last week was $.0729 per kilowatt hour, virtually the same as the previous week. The benchmark price in most deregulated states moved only a fraction of a percent, with the greatest changes seen in Texas (+0.82%), New Jersey (+0.64%), and New York (+0.63%).
As the next wave of warm air begins to replace last week’s cold spell, natural gas prices continue to drift lower. The spot NYMEX natural gas contract price has been trading below the $2.00 per million British thermal units (MMBtu) threshold for seven out of the last ten trading sessions. Barring a major change in weather forecasts, the spot contract price is likely to trade in this range for the short-to-medium term.
The latest National Oceanic and Atmospheric Administration 6-to-10 day and 8-to-14 day outlooks call for another warming trend across the eastern U.S. Both forecasts project above-normal temperatures over the majority of the country, with the exception of a portion of the southeast, where below-normal temperatures are expected. This should result in below-normal levels of natural gas demand for heating for the next several weeks.
Long-Term Price Benchmark Trends
Warm winter weather continues to limit seasonal storage withdrawals, as evident by last week’s withdrawal of only 70 billion cubic feet. The U.S. Energy Information Administration reported Thursday that natural gas storage inventories now sit at 23% above the five-year average, and 25% above levels last year at this time.
Despite a steep drop in oil and gas rig counts, production continues at a stronger-than-expected clip within the eastern producing regions. Lower-cost, higher-efficiency drilling operations are driving sustained gas production. The precarious financial position of many oil and gas producers is also driving production. With current prices below production costs, many producers continue to drill for short-term cash flow that can sustain their cash-strapped operations and avoid bankruptcy. Unless we have a sizzling summer with high cooling demand that deflates storage levels, an increasing number of bankruptcies will likely occur in the oil and gas fields.
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.
*The weekly average price benchmarks are derived from a standardized database of daily matrix prices issued by many electricity suppliers. The database is updated every business day and includes prices issued from September 2013 forward. The benchmarks are derived by aggregating individual supplier prices across the General Service tariff rate classes for each electric utility, and then averaging the utility price benchmarks together for a state level benchmark. Finally, these state level benchmarks are averaged across the five business days of each week to create the weekly average price benchmarks by state. These benchmarks reflect the average prices for General Service tariff rate classes by utility and state, based on next month’s start date. As mentioned, these benchmarks are based on matrix prices for commercial customers with an annual usage of up to 1 million kWh. While they are not a valid measure of pricing for larger C&I customers, the high level of correlation between matrix and custom pricing make the benchmarks a reliable measure of how prices are trending, as well as the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P or Dow measures the rate and direction of change in stock market prices over time.