Although natural gas and electricity prices were relatively flat during the prior three-week period of August 23 through September 13, 2013, prices made a small move upward this week. During this week's seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2% and the 12-month average price for peak power on the PJM rose 1%.
Prices are still trading near their second lowest level in nine years because supply is high and demand is low. On the supply side, natural gas production numbers are near an all-time high, thanks to the shale gas phenomenon. Analysts, however, are starting to focus more on the demand component.
Many analysts are predicting that the demand for natural gas will grow 20%-30% during the next 10 years. Most of the incremental demand will come from the industrial sector and the power plant sector. Additional demand is expected to come from the natural gas vehicle sector and from the exporting of liquefied natural gas (LNG).
The largest growth in demand is from the power plant sector. Many power plant operators are switching from coal to gas. In fact, according to U.S. Energy Information Administration (EIA), gas demand at the power plants has already grown from 18% to 34% during the 10-year period of 2002-2012.
For now, the good news is supply is greater than demand and thus both natural gas and electricity prices are trading at very attractive levels. However, do not be lulled to sleep. Along with the demand components noted above, the winter heating season is on the way. According to the Farmers Almanac, 66% of the nation is expected to experience below average temperatures during the winter of 2013-2014. Unusually cold weather tends to place upward pressure on energy prices.