What an amazing ride. For this seven day report period, the 12 month average price for natural gas on the NYMEX fell 11%. The 12 month average price for peak power on the PJM fell 4%. Since the unofficial start of winter on Nov. 1, 2011, natural gas prices have dropped 31% and electricity prices have dropped 24%. Natural gas prices are trading near the ten year low and electricity prices are trading near a nine year low.
Very mild weather and record gas production have pushed prices down to these attractive levels. On the production side, shale gas is flooding the market. In fact, according to a recent article in Gas Daily, natural gas production in the United States is now at an all-time high.
On the weather side, the temperatures in November and December were much warmer than normal. Plus, the 8 to 10 day forecast calls for above-average temperatures east of the Mississippi. Because of these mild temperatures, natural gas is not being consumed and is thus left in storage. This week's natural gas withdrawal was 46% lower than the five year average withdrawal. As a result, the surplus over the five year average grew from 17% to 20%.
Are prices near the bottom? Here are some variables worth watching because they could place some upward pressure on prices: Firstly, many coal-fired electric plants are switching to natural gas because gas prices are low relative to coal. Secondly, a number of companies are now looking to export natural gas to other countries. Thirdly, weak prices may prompt some producers to shut -in their gas wells. Lastly, sanctions placed on Iranian oil could create some instability in the oil markets.
For now, prices are trading at very attractive levels. This is a great time to look at the early renewal strategy with your WGES account manager.