For the second week in a row, natural gas and electricity prices were relatively flat. For this seven day report period, the 12 month average price for natural gas on the NYMEX fell less than 1%, and the 12 month average price for peak power on the PJM rose less than 1%. For now, natural gas prices are trading near an eight year low and electricity prices are trading near a seven year low. (Please see the graphs included elsewhere in this newsletter for the trend lines.)
There are a number of variables that are forcing energy prices to drop to these attractive levels. Let's look at the most notable supply and demand variables that are creating this downward pressure. On the supply side, natural gas supplies are robust thanks to the shale gas discoveries. In the year 2000, shale gas production was .39 Tcf. However, in 2010, shale gas production rocketed to 4.87 Tcf. Currently shale gas accounts for 25% of the United State's total gas production and is expected to climb to 46% in 2035. The shale gas supplies are expected to more than offset the supply declines we are experiencing with the traditional rig counts. The traditional gas rig counts are 20% below the 5 year average. Thanks to shale gas, supplies are high for now.
From the demand side, energy demand is low because of the sluggish economy. Instead of gas getting consumed by customers, it is getting injected into the storage fields. For example, the natural gas in the storage fields is now 4.4% above the five year average. For now, energy demand is low.
High production and low demand are the big reasons that natural gas prices are near the eight year low and electricity prices are near the seven year low. However, winter is on the horizon. Plus, the U.S. Commerce Department just announced that the U. S. gross domestic product expanded at an annual rate of 2.5% for the third quarter. This is the best growth we have seen all year. Where do prices go from here? Stay tuned. Some analysts say that natural gas is the most volatile commodity in the world.