Although natural gas and electricity prices were relatively flat over the last two weeks, natural gas prices made a small move upward this week. For this seven-day report period, the 12-month average price for natural gas on the NYMEX rose 3.4% while the 12-month average price for peak power on the PJM remained flat.
This week's price increase in the natural gas market can be tied to the weather. When it gets hot, the air conditioners run at full speed. In order to meet this cooling demand, the power plants burn coal and natural gas to power the turbines that create our electricity. These demand spikes can place upward pressure on fossil fuels like natural gas.
Additionally, because natural gas is displacing coal as the fuel of choice for the power plants, less natural gas is available for injection into the storage fields. Although gas storage fields are still near record high levels for this time of year, the storage surplus is shrinking. For the thirteenth week in a row, the natural gas storage surplus shrunk. The natural gas storage surplus is now only 15.7% above the five year average. On May 3, 2012, the gas surplus was 55% above the five-year average.
Stay tuned. All eyes are on August. Will it be hot enough to eliminate the record gas surplus in the storage fields?