Although natural gas and electricity prices unexpectedly rose last week, prices were relatively flat this week. For this seven-day report period, the 12-month average price for natural gas on the NYMEX fell 1.4% and the 12-month average price for peak power on the PJM rose 1.6%.
At this time, natural gas and electricity prices are trading at a ten-year low, but are beginning to flatten out as you can see from the natural gas and electricity pricing graphs included in this newsletter. Is this the bottom?
Record warm temperatures and ample shale gas supplies get the credit for causing these low, attractive prices. This was the fourth warmest winter on record. According to the U.S. Energy Information Administration, "heating degree days nationwide were down 38.7 percent from normal."
Record warm temperatures have now spilled into the month of March. Because of the record warmth this month, we did not see a withdrawal from the natural gas storage fields this week. In fact, we saw an injection of 11 Bcf. into storage for this report period. This is only the fifth time since record keeping began in 1994 that we saw an injection during the middle of March. The gas surplus over the five-year average grew from 51% to 54%
Some analysts now argue that prices may be near the bottom. They point to the fact that natural gas prices are too low to motivate the drillers. As an example, Reuters reported that "the gas-directed rig count fell for the 10th straight week, down by seven to 663, its lowest since May 2002." Additionally, as we have reported in previous newsletters, big producers like Chesapeake Energy are beginning to shut-in their gas wells due to low prices.
It is very hard to know if this is the bottom. However, we may begin to see some upward pressure on prices if the trend of unusually warm weather continues into the summer and the natural gas-fired generators are needed to meet the seasonal air conditioning demands. Another factor that may place upward pressure on prices is if natural gas producers continue to shut-in their gas wells.