For this seven day period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) decreased 2.8% closing at $0.4328/therm, while the 12-month average price for peak power on the PJM also fell 2%.
For the past few weeks we have been focusing on natural gas storage and its possible impact on energy prices over the next few months. Many analysts have been concerned that the combination of a hot summer and low storage numbers could lead to higher prices. Well, this week we received a bit of promising news as the U.S. Energy Information Administration (EIA) reported an injection of 106 Bcf. This injection exceeded market expectations and marks the second, triple-digit injection of the season. With continued mild temperatures projected for most of the country over the next 10 days, many analysts believe that injections will remain strong in the short-term, possibly keeping a lid on energy prices.
Don't get too comfortable! It is still too early to tell what temperatures will be like over the summer, and Bentek Energy is calling for power burn (the use of natural gas to generate power) to remain strong due to relatively low market prices. In fact, Thursday's power burn of 24.2 Bcf/d was the highest recorded since April 1st. Summer remains the wild card.
Seeing as how power burn now accounts for somewhere in the vicinity of 30% of all natural gas consumption, storage and weather will continue to be two of the most important components driving energy prices. However, this week I would like to point your attention to another increasingly important factor: industrial natural gas consumption. According to EIA, "[industrial] natural gas consumption bottomed out in 2009 at 16.9 Bcf/d, but has been increasing at a moderate pace." In fact, just this month two large European companies, BASF and Yara, announced plans to co-develop an ammonia plant on the Gulf Coast. This plant alone will have the potential to use up to 77 MMcf per day. Both companies referenced low natural gas prices as their reason for locating the plant in the United States.
Could this be the beginning of a trend? Stay tuned.