For the second report week in a row, but only the second time in five weeks, natural gas and electricity prices rose. During last week's seven-day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 3% and the 12-month average price for peak power on the PJM rose 1%.
Once again, weather gets most of the blame for last week's price increase. According to the Energy Information Administration (EIA), average temperatures during the first three days of last week were warmer than the same time period spanning the previous five years.
Additionally, the National Oceanic and Atmospheric Administration (NOAA) predicted that most of the country would experience warmer-than-normal temperatures during the first week of September. During these recent hot spells, more natural gas was diverted to the power plants and less gas was available for injection into the storage fields. This behavior placed upward pressure on energy prices, as witnessed over the last two weeks.
Do not panic, however. The summer demand season is almost over and the natural gas supply outlook is positive. According to EIA, "U.S. proved reserves began growing sharply in the mid-2000s as operators adopted expanded horizontal drilling programs and applied new hydraulic fracturing techniques in shale formations." Thanks to this shale gas phenomenon, natural gas production numbers are operating near record high levels.
Despite the turbulence caused by the recent hot weather, supply is high and energy prices are still trading at very attractive levels. For now, both natural gas and electricity prices are trading near their second lowest level in nine years.