Technically, spring has sprung. On Wednesday, March 20, 2013, at 7:02 a.m., the vernal equinox occurred signaling the start of spring in the Northern Hemisphere. Normally, at this time of the year, as earth begins to tilt more towards the sun in the northern hemisphere, we expect the onset of warmer temperatures.
However, this March came in like a lion and is expected to leave like a lion. March has been much colder than normal, and the 8-14 day forecast from the National Oceanic and Atmospheric Administration (NOAA) predicts that late March will continue to be colder than normal east of the Mississippi.
This cold weather is placing some upward pressure on energy prices. For the fourth week in a row, energy prices inched upward. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2.5% and the 12-month average price for peak power on the PJM rose 1.5%. Since the start of the month, natural gas prices have increased by $.035/therm or 9%. Peak power prices on the PJM have increased by 4.2%.
The recent cold snap is also drawing attention to the natural gas storage fields. Thanks to this cold weather, the last four gas withdrawals have been larger than normal. As a result, the gas storage bubble continues to shrink. To date, we have 21% less gas in storage than we did last year at this time. However, the gas bubble has not completely disappeared. The storage fields are still 9.5% above the five-year average, but this number is also shrinking. As you may recall, last year at this time the natural gas storage levels were 54% above the five year average. This shrinking gas bubble may be partially responsible for these recent price increases.
It appears that we will have much less gas in storage at the end of this heating season than we did a year ago. This means the demand for gas may be higher this summer than last summer as more gas will be directed towards the storage fields during the summer injection season. This event could place more upward pressure on prices, especially if we have a hot summer.