Earlier this month, the National Oceanic and Atmospheric Administration (NOAA) delivered its first cold weather forecast of the season for the week of Oct. 4-10, 2013. Not surprisingly, this news impacted the markets, causing natural gas prices to rise 5% and peak power prices on the PJM to rise 2%. The following week (Oct. 11-17) was quiet, with no news stories to spook the markets. As a result, we saw minimal price movements in the natural gas and electricity markets.
This week, NOAA called for continued cold weather east of the Mississippi, but the markets appeared to ignore the weather forecast as prices fell. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 3%, while the 12-month average price for peak power on the PJM also fell 1%.
The impact of the cold weather forecast was apparently blunted by natural gas storage levels, which are near full as we enter the heating season, and natural gas production levels, which are near an all-time high.
On the storage side, this week's injection was 87 Bcf, the second largest injection in twenty years for this time of year. We will enter the heating season with plenty of gas in storage as natural gas inventories ended the week 2.1 % above the five-year average.
On the supply side, natural gas production continues to hover near an all-time high thanks to shale gas. Shale gas is one of the biggest reasons that both natural gas and electricity prices continue to trade near their second lowest level in nine years. In fact, according to the U.S. Energy Information Administration (EIA), "natural gas production in the Northeast has grown about 3.2 billion cubic feet per day so far in 2013, a 30% increase from the same period last year."
For now, both electricity and natural gas prices are trading at low levels relative to the last 10 years because supply is high and demand is low. However, the start of the heating season has arrived. Old Man Winter will have a lot to say about the direction of energy prices during the next four months .