The upward trend continues. Last week, the12-month average price for natural gas on the NYMEX rose 4.2%, while the 12-month average price for peak power on the PJM rose 2%. This week, the 12-month average price for natural gas on the NYMEX rose 4.9%, while the 12-month average price for peak power on the PJM rose 1.1%. Since May 3, 2012, natural gas prices are up 14% and electricity prices are up 2.5%.
Hot weather is a big variable that places upward pressure on energy prices. We see demand spikes during a hot summer because many power plants burn natural gas to produce the electricity that is needed to power our beautiful air conditioners. These demand spikes can spook the markets and place upward pressure on energy prices.
Hot weather can also impact the natural gas storage levels. Summer is the time of year that natural gas is injected into the storage fields. The traditional injection season runs from April 1 to Oct.1. If you have an unusually hot summer, the natural gas that would normally go into the storage fields is burned by the power plants. A hot summer can delay the injection process and place upward pressure on prices.
This year, for example, both May and June were warmer than normal. During this hot spell some natural gas was diverted from the storage fields to the power plants. Over the last 10 weeks gas injections were far below normal. Since May 3, 2012 the natural gas surplus has gone from 55% above the five-year average to 22% above the five-year average.
The big question is whether or not the summer temperatures will be hot enough to erase the gas bubble?