Do not put away your sweaters. According to the National Oceanic Atmospheric Administration, another polar vortex is heading our way next week. The forecast for the time period of February 26 to March 2, 2014 calls for the return of unusually cold weather east of the Mississippi.
This forecast spooked the energy markets and placed upward pressure on energy prices this week. For this seven-day report period the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2.6%, and the 12-month average price for peak power on the PJM rose 6%.
This erratic weather spooks the marketplace because these persistent cold snaps are draining the natural gas storage fields ahead of schedule (the traditional withdrawal season ends March 31st). Currently, natural gas storage fields are operating at a 10-year low. In fact, the natural gas storage numbers released last Thursday by the Energy Information Administration show that natural gas storage fields are now 40% below last year's levels and 34% below the five-year average. Last year at this time, natural gas inventories were 17.7% above the five-year average.
This growing deficit is keeping upward pressure on both electricity and gas prices. If February and March are colder than normal, the industry will spend all Spring and Summer filling up the depleted storage fields which may keep upward pressure on both electricity and gas prices for the next few months.