For this seven day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 2% closing at $0.445/therm, while the 12-month average price for peak power on the PJM also fell 2%.
While we enjoyed a small price decrease this week, all eyes are looking ahead to the upcoming summer where the combination of temperatures and natural gas storage levels will likely drive prices for the next few months.
On the storage side, levels are 45% below the five-year average and operating at an eleven-year low according to the Energy Information Administration (EIA). The industry needs to erase this storage deficit in order to keep a lid on energy prices this summer. Low storage levels can lead to higher energy prices.
On the weather side, if we have a hot summer and natural gas is directed to the power plants instead of the storage fields, it will be difficult to minimize this storage deficit. A hot summer is a bigger concern this year than in years past because more power plants are now turning to natural gas to fuel their turbines.
To illustrate this concern, consider that according to EIA, back in April 2012, "generation from natural gas fired plants was virtually equal to generation from coal fired plants with each providing 32% of total generation." In other words, with the power plant operators able switch between coal and natural gas to fuel their generators, they will likely fire the source that is most cost effective to run. If it is a hot summer and the gas fired plants are called upon to carry the load, the storage deficit may linger into the Fall and create some upward pressure on energy prices. Stay tuned. Summer is the wild card.