Due to the Independence Day holiday last week, this issue of Energy Update covers the two-week period of June 28 - July 11, 2013. In our previous update, we reported the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 6% while the 12-month average price for peak power on the PJM fell 4%.
However, for this 14 day reporting period we saw very little price movement as the average 12 month price for natural gas on the New York Mercantile Exchange (NYMEX) fell less than 1% and the 12-month average price for peak power on the PJM fell less than 1%.
The two big variables that have continued to keep a lid on energy prices were storage and weather. On the natural gas storage side, the natural storage deficit continued to shrink as we saw another larger-than-expected injection. As reported by the U.S. Energy Information Administration yesterday, natural gas inventories were now only 1% below the five-year average.
On the weather front, the U.S. National Oceanic and Atmospheric Administration's 6-10 day outlook for July 17-21, 2013 continues to call for normal temperatures in most parts of the country. Less heat means that less natural gas will be needed to fuel the country's power plants. Mild weather, of course, dampens demand and helps keep a lid on energy prices.
However, the summer season is just getting started. Summer temperatures will continue to be the biggest wild card during the next two months. The reason that hot weather impacts energy prices is because more power plants are consuming natural gas to meet the country's air conditioning needs.
Natural gas consumption by the power plant sector is definitely increasing and will continue to impact pricing in the future. More power plants are burning natural gas because gas prices are low enough to compete with coal and natural gas is the cleaner option.
Stay tuned. A hotter-than-normal summer could impact energy prices more than ever before.