Over the past four weeks we have enjoyed mild spring temperatures, which resulted in minimal demand for either heating or cooling. We commonly refer to this time of year as the "shoulder season." During this time we experienced a small dip in prices for natural gas and electricity. However, it appears that the "shoulder season" has now ended.
During this seven-day report period the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 6.6%. The 12-month average price for peak power on the PJM rose 5%.
Two variables seemed to spark this week's price rally: the weather forecast and news related to a federal regulatory action.
On the weather front, the National Oceanic and Atmospheric Administration (NOAA) has released its forecast for the period of May 31 to June 6, 2013. The outlook calls for above-average temperatures east of the Mississippi, meaning that the first heat wave of the season is coming our way. The marketplace is very sensitive to weather forecasts. As temperatures rise, more natural gas is directed to the power plants instead of the natural gas storage fields.
The other variable that spooked the marketplace came from the regulatory arena. Last Friday, May 17, the U.S. Department of Energy announced the conditional approval of a second Gulf Coast terminal in Texas designed to export liquefied natural gas. The market place is very sensitive to this issue because exporting natural gas overseas is new to the U.S energy markets. Some industry watchers fear that a vibrant natural gas export model will place upward pressure on prices for our domestic energy supplies. These concerns tend to place upward pressure on energy prices.
Stay tuned. Summer doesn't officially start until June 21. But with hot weather forecast to head our way soon, it looks like our "shoulder season" is definitely over.