This is the second week in a row that natural gas and electricity prices closed relatively flat compared to last week's numbers. For this seven-day report period, the 12-month average price for natural gas on the NYMEX fell 1% and the 12-month average price for peak power on the PJM rose one tenth of 1%.
This week, analysts focused their attention on the natural gas storage bubble. The United States is enjoying a large surplus of natural gas because this unusually warm winter has limited the demand for heating. In fact, this may be one of the warmest winters ever experienced in the U.S. In the D.C. metropolitan area, November 2011 was 20% warmer than normal, December 2011 was 22% warmer than normal and January 2012 was 17% warmer than normal. The natural gas storage bubble is now 32% greater than the five-year average. The traditional withdrawal season ends on March 31, 2012. At this pace, we are expected to end the season with the largest gas surplus since 1983.
Is this the bottom? At this pricing level, analysts continue to say that producers will start "shutting-in" their wells because it will become economically unattractive for them to drill. In fact, this week another large driller, BG of the United Kingdom, announced they were severely reducing their shale gas drilling due to low prices.
Stay tuned. For now, natural gas and electricity prices are trading at very attractive levels.