Although energy prices have been relatively flat over the last few weeks, we saw prices creep upward this week. For this seven-day report period the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 1.9% and the 12-month average price for peak power on the PJM rose by 2.2%.
As you can see from the line graphs in this newsletter, energy prices have leveled out over the past few weeks. The market could not decide which direction to go. However, this week natural gas and electricity prices inched upward as the recent cold snap created demand for space heating.
On top of the space heating demand, we are also dealing with the fact that more power plants are switching from coal to clean natural gas to fuel their turbines. These two components, space heating demand and power plant conversions, can increase the demand for natural gas and place upward pressure on energy prices this winter.
Thanks to the convergence of these two demand components we even experienced our first withdrawal of the season. This week we saw a natural gas withdrawal of 11 Bcf from the storage fields, which was the first withdrawal of the season. Last year at this time we saw an injection of 20 Bcf.
At this time of year winter is always the wild card. The big question is whether temperatures this winter will be cold enough to significantly reduce the size of the gas storage bubble and keep upward pressure on prices.