Natural gas prices were unable to fall for a fourth straight week. For this seven-day 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 was almost identical to the previous week's close.
Natural gas and electricity prices tried to creep upward this week with the onset of the winter heating season. For the short term, winter temperatures are the wild card because as temperatures drop, the demand for natural gas and electricity rises.
Though natural gas is needed to heat our homes and businesses, there is increasing demand for the use of natural gas at the power plants during these cold snaps. In fact, according to the U.S. Energy Information Administration (EIA), "the mix of fuels used to generate electricity in homes, factories, and businesses across the United States has changed in the past few years as coal, still the largest single fuel used for electricity, has lost some of its share of the generation market to natural gas and non-hydroelectric renewables." As natural gas gains traction as the fuel of choice for power generation, it is possible that unusually cold winters and unusually hot summers will place upward pressure on both electricity and gas prices.
Aside from the weather, another interesting development with possible implications for the domestic energy market is the export of liquefied natural gas (LNG). In the past two years, the U.S. Department of Energy (DOE) has approved four applications to build LNG export facilities. The most recent application for the Cove Point terminal on the shore of the Chesapeake Bay has been granted approval to export up to 0.77 bcfd. Critics argue that the increase in demand that could result from the export of such high volumes of natural gas will place upward pressure on domestic energy prices. With 21 more applications for terminal development pending with the DOE, energy markets are likely to react in some way.
For now, prices are trading at very attractive levels as natural gas production is operating near all-time highs, and the natural gas storage fields are 1.5% above the five-year average. Stay tuned. Winter officially starts on December 21.