In last Friday's Energy Update, we saw that the 12-month average price for natural gas on the NYMEX rose 1% and the 12-month average price for peak power on the PJM rose 2%. However, that small rally was neutralized this week. For this seven-day report period, the 12-month average price for natural gas on the NYMEX fell 6% and the 12-month average price for peak power on the PJM fell 4%.
On the supply side, record-high storage levels kept downward pressure on natural gas and electricity prices. This week's natural gas withdrawal was only 82 Bcf. As a result, the surplus over the five-year average grew from 40% to 45%. We are expected to end the traditional withdrawal season on March 31 with record-high inventories for this time of year. Beware: analysts continue to point out that natural gas producers are beginning to shut-in some of their gas wells in an effort to place upward pressure on prices.
On the demand side, the winter heating season never arrived. The United States (excluding Alaska and Hawaii) is experiencing one of the warmest winters on record. Closer to home, for example, Richmond, Virginia is experiencing its fifth warmest winter on record. The absence of winter and this week's forecast for warmer-than-normal temperatures over the next 14 days kept downward pressure on prices.
Moving forward, on the demand side, many electricity-generation operators are now turning off their coal-fired plants and turning on their natural gas-fired plants. According to Bentec Energy LLC and the U.S. EIA, "natural gas consumed in the power sector this February was almost 27 percent greater than the natural gas power burn in February 2011."
As more electricity-generation operators continue to make this change to gas, and as gas producers shut-in their natural gas wells, we may begin to see some upward pressure on natural gas and electricity prices.