We have officially entered the "shoulder season." This is the time of year when you have very little need for heating or cooling. For most folks, this time is year is also called "spring."
Severe cold snaps or severe hot spells are less likely to hit during this time of the year. Thus, energy prices have fewer reasons to spike up or down. For now, it looks like natural gas and electricity prices have stabilized at today's levels. (Please see the graphs elsewhere in this issue that depict the trend lines for natural gas and electricity prices over the last 8 years.) For this seven-day report period, the 12-month average price for natural gas on the NYMEX fell 3% and the 12-month average price for peak power on the PJM rose 1%.
However, do not be lulled to sleep; summer is just around the corner. Hot summer weather and hurricanes can bring price spikes to the energy markets. Energy prices tend to rise during a hot summer because demand for cooling increases. Most power plants burn fossil fuels to create the electricity that is needed to feed our air conditioners. According to the Energy Information Administration, "in 2011, coal was the fuel for 42% of the 4 trillion kilowatt hours of electricity generated in the Untied States. In 2011, 25% of the Nation's electricity was fueled by natural gas." Natural gas power plants are very active when electricity usage is in high demand. On top of all of this, EIA reports that natural gas is now replacing coal as the fuel used in electricity generation in all parts of the country because natural gas is cleaner and less expensive than coal.
This could be the calm before the storm. Energy demand is low and natural gas and electricity prices have stabilized near a 10-year low. Natural gas production remains high and the natural gas storage hangover enters the shoulder season at a all-time high thanks to the fourth warmest winter on record. It is very hard to know if this is the bottom. Summer temperatures are now the wild card.