Natural gas and electricity prices continue to hover near a 10-year low thanks to an oversupplied natural gas market. For this seven-day report period, the 12-month average price for natural gas on the NYMEX fell 4% and the 12-month average price for peak power on the PJM fell 1.7%.
The natural gas market is oversupplied thanks to record high production levels and the fourth warmest winter on record. The mild weather limited this year's heating demand and minimized the amount of gas that was withdrawn from storage. We are entering spring with a record gas surplus in storage. The gas surplus over the five-year average sits at 58%.
In addition to the record storage levels, natural gas production is at record high levels even though the natural gas rig counts are dropping. The natural gas rig count is 29% lower than last year at this time. However, we see increased production coming from the technological advances in shale gas drilling. In addition, natural gas is a by-product of the wells that are searching for oil. The oil-directed rig counts are 50% higher than last year at this time because oil drilling is financially attractive.
Analysts are not sure how long the natural gas market will be over supplied. Producers are beginning to shut -in their gas wells, and many power plants are switching from coal to natural gas. According to the Energy Information Administration, 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.
Another factor that could balance demand with supply is the global liquid natural gas market. Some energy players want to liquefy our natural gas surplus and then export the gas to the overseas global markets. This endeavor would likely place upward pressure on demand and prices.
For now, energy demand is low, natural gas production is high, and natural gas and electricity prices are hovering at a10-year low.