During this seven day period, the 12 month average price for natural gas on the NYMEX fell 1%. The 12 month average price for peak power on the PJM fell 5%. Natural gas prices are trading near the nine-year low and electricity prices are trading near an eight-year low.
It is no secret why prices are low. Supplies are high and demand is low. On the supply side, according to the U.S. Energy Information Administration, "total supply remained 7.6% above year-ago levels signaling the continued strength in domestic production." This increased gas production is coming from the the shale gas discoveries. On the demand side, warm weather has reduced the need for space heating. During the last two months of calendar year 2011, temperatures across the country were much warmer than normal. In fact, in this region, the temperatures in November were 20% warmer than normal and the temperatures in December were 22% warmer than normal.
This robust gas production coupled with the minimal use of natural gas for space heating has created a natural gas bubble. Natural gas inventories ended 2011 at record high levels. Currently the year-to-year surplus has grown to 11%. The surplus over the five year average has grown to 15%. Warmer than normal temperatures over the last two months helped create this gas bubble.
The year 2011 was a great year for low natural gas and electricity prices. With natural gas prices trading near the nine-year low and electricity prices trading near an eight-year low, this is a great time to look at the early renewal strategy for 2012- 2013.