Short-Term Price Benchmark Trends
The Energy Research Council (ERC) national average benchmark price for retail electricity continues to decrease, falling to $0.0723 per kilowatt hour (kWh) last week. Nationally, prices are 4.1% lower than four weeks ago. Texas is the deregulated market with the lowest benchmark price for retail electricity ($0.0421/kWh). Prices have decreased 7.8% in four weeks in Connecticut, and 7.7% in New York.
Above-normal temperatures are expected to cover only 45-50% of the U.S. the rest of this week, receding to about 30-35% during the next two weeks. The moderating summer heat should ease demand for natural gas, and allow the pace of natural gas storage building to accelerate.
Natural gas prices fell 6.7% this past week, the biggest one-week percentage decline since March. The September 2016 NYMEX natural gas contract is trading back in the lower technical trading range of $2.60 per million British thermal units (MMBtu) on the resistance end, and $2.28/MMBtu on the support side. This is within a technical trading range that was in play in April and May of this year.
Long-Term Price Benchmark Trends
Cooler temperature forecasts at this late stage of summer are depressing any upward movement in prices. Normally, tropical storm activity would be spurring some buying interest from around mid–August through the month of September. But, even though the National Oceanic and Atmospheric Association has increased its expectations for a more active hurricane season than previously forecast, the market apparently sees no reason to inject an additional premium in gas prices.
Meanwhile, the accelerated upswing in the drilling rig count is forcing some upward adjustments in production estimates. Without assistance from the temperature factor, the market will likely become increasingly reliant on production disruptions for any significant price advances.
Last week’s natural gas storage build reduced the year-over-year storage glut to 12.2 percent. Natural gas inventories are currently at 76.4% of the U.S. Energy Information Administration’s demonstrated maximum working capacity. This puts storage capacity more in sync with the gas volume earmarked for storage. With moderating summer temperatures and lower cooling demand resulting in an underperformance injection season to date, what looked like a potential capacity problem may be alleviated.
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.
