For this seven-day report period, the average 12-month closing price for natural gas on the New York Mercantile Exchange (NYMEX) came in at $0.454/therm, a 1% decrease from last week. Meanwhile, the 12-month average price for peak power on the PJM rose 2% from the previous week's close.
Energy prices were unable to sustain any big rallies this week as traders seemed to recognize that winter has finally come to and end. In the energy business, April 1st marks the start of the Spring season which we commonly call the "shoulder season". During the shoulder season there is generally little demand for either heating or cooling. In other words, this is a low demand period for energy. This week the traders were apparently looking forward to Spring and this variable was enough to keep a lid on any big price rallies for now.
Where do energy prices go from here? This is a good time to reflect on this past, very cold winter. In this area, November 2013 was 17% colder than normal, January 2014 was 12% colder than normal, February was 4% colder than normal and March was 19% colder than normal. Additionally, according to the U.S. Energy Information Administration (EIA) and Bentek Energy, "total natural gas consumption in the Unites States rose to a record average of 90.6 billion cubic feet per day (Bcf/d) this winter."
As a consequence of this very cold winter and the subsequent energy demand, the natural gas industry entered the Spring shoulder season with an unusually low storage position. The U.S. Energy Information Administration (EIA) just reported that working gas in storage as of March 28, 2014 was 822 Bcf which was 55% below the five-year average. This marks an eleven year low.
The current concern is that an unusually hot summer could place upward pressure on energy prices. What happens if natural gas demand spikes at the power plants this summer, while, concurrently, more gas is needed to replenish the storage fields? This double demand component could place upward pressure on energy prices during the summer. Stay tuned. You may want to consider early renewal options during the months of April and May to avoid the possibility of summer-heat price spikes.