For this seven day report period, energy prices dropped for the fifth straight week. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 3% closing at $0.398/therm and the 12-month average price for peak power on the PJM fell 1.7%.
Since June 12, 2014, the 12 month strip price for natural gas on NYMEX has dropped 14% and the 12-month average price for peak power on the PJM has dropped 11.5%. The recent price drops reflect the fact that supply is high and demand is low for now.
Once again, the big variable that captured every one's attention this week was the country's natural gas storage position. This week we saw another triple digit injection of 107 Bcf. This was the largest July injection in over a decade and the 13th consecutive week of above average injections.
As a result of these unusually large injections, the record storage deficit has been cut in half in just 14 weeks. On April 3, 2014, the storage fields were 55% below the five-year average. However, this week the natural gas storage fields were 25% below the five-year average,
Thanks to the absence of any sustained heat waves this summer and the record-high gas production coming out of the shale formations, the excess gas supply has been diverted from the power plants to the storage fields. We still have a large storage deficit to address but industry analysts seem cautiously optimist that the caverns can be re-filled to 3,400 Bcf by November 1st. This rapid refill of the caverns has kept downward pressure on energy prices over the last five weeks.
However, don't be lulled to sleep. With natural gas prices at this level, analysts believe that more power plants may switch from coal to natural gas once the hot weather returns. If hot weather enters the equation, we may see less gas available for storage which could reverse the recent downward trend.