The sustained cold weather of January '14 wreaked havoc on the energy markets. The record breaking month upended energy budgets and forced two suppliers out of business.
We saw record demand days for natural gas in January 2014, and we saw the PJM power grid break their previous winter demand record on Jan. 7, 2014. The month of January ended 12% colder than normal.
The record demand was bad enough, but to make matters worse, the unusually cold temperatures in January also caused unexpected outages of power plants on the PJM. This double threat of record high demand and power plant outages caused record high price spikes in the spot markets. Natural gas prices traded for more than $10/therm and daily electricity prices traded above $0.50/kwh in the daily spot markets. These record high spot prices put some suppliers out of business if they were not properly hedged and caused some budget overruns for the month of January if customers were on a variable rate plan.
To date, the price spikes in the futures markets have not been as drastic as the price spikes on the spot market. Since Jan. 1, 2014, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) has risen 8% and the 12-month average price for peak power on the PJM has risen 16%.
Where energy prices go from here depend on the February weather patterns. We are hopeful that the polar vortexes stay to the north. The concern is that these colder than normal temperatures have wreaked havoc on the natural gas storage fields. Last year at this time, natural gas inventories were 12% above the five-year average. However, storage levels at the end of this report period were 22% below the five-year average.
The record demand for both natural gas and electricity and the growing storage deficit are keeping upward pressure on energy prices. We need a warming trend to help keep on a lid on energy prices.