For this seven day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 1% closing at $0.4693/therm. However, the 12-month average price for peak power on the PJM rose 3%.
This Spring natural gas prices have been relatively rangebound, but electricity prices have been slowly creeping upward. From March 1, 2014 to May 1, 2014 natural gas prices rose 3%, but electricity prices rose 8%.
Where do prices go from here? The big concern for now is that we will enter the summer season with the natural gas storage fields at an 11-year low. The natural gas storage fields are 44% below last year's levels and 50% below the five-year average.
In order to re-fill the storages to a respectable level of 3,400 Bcf prior to November 1st, the industry will need to inject an average 86 Bcf per week. This week we saw our first respectable injection of 82 Bcf. Unfortunately, the first three injections of the seasons only averaged 25 Bcf per week.
We have a long way to go to get these caverns filled. The rush to re-fill these caverns during the summer months will create an additional demand component for natural gas which could place upward pressure on energy prices if we have an unusually hot summer.
I leave you this week with an interesting fact from the EIA that touches on the future demand for natural gas which could impact energy prices: "In 2012 coal-fired and nuclear power plants together provided 56% of the electricity generated in the United States." It is important to note that 16% of these coal-fired plants are set to be retired by 2020. As we see more turbines switch over from coal to natural gas, we may see additional price volatility in both the electricity and natural gas markets during an unusually hot summer or cold winter.