Natural gas and electricity prices are trading in a tight range right now. They rise slightly one week and drop slightly the next week. For example, last Friday we reported that natural gas prices on the New York Mercantile Exchange (NYMEX) rose 1.5% and the 12-month average price for peak power on the PJM rose by less than 1%.
Now, for this seven day period, prices dropped. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 2.6% closing at $0.452/therm, and the 12-month average price for peak power on the PJM fell 1.1%.
Energy prices have been trading relatively flat over the last seven weeks compared to this past winter. Since May 2, 2014 natural gas prices for the 12 month strip on the New York Mercantile Exchange (NYMEX) have dropped 3% and the 12-month average prices for PJM electricity have fallen 3.8%.
Energy prices have been unable to sustain any major moves up or down this spring because the bad news stories have been neutralized by the good news stories. The bad news is that the natural gas storage fields are operating 33% below the five-year average. The storage fields are still operating at an 11 year low. We have a long way to go to refill the caverns to 3,400 Bcf by November 1st. We need 20 more consecutive injections above 84 Bcf if we want to overcome the deficit created by this past winter's huge heating demand.
The good news is that the storage deficit was shrinking. This week was the sixth consecutive triple-digit injection of the season. This was the first time in history that the industry reported six consecutive injections over 100 Bcf. The natural gas storage fields were 50% below the 5 year average on May 2, 2014, but were only 33% below the five year average on June 19, 2014.
Thanks to the moderate temperatures we have enjoyed over the last six weeks, the industry has been able to divert natural gas from the power plants to the storage fields. However, summer is on the way. The first day of summer arrives Saturday, June 21, 2014 at 6:51 A.M. This is the day with the most sunlight hours and it signals the beginning of summer for the Northern Hemisphere.
If we have a hot summer natural gas will be directed to the power plants instead of the storage fields. A hot summer will likely worsen the storage deficit and thus place upward pressure on energy prices. Summer is the wild card.