The traditional injection season has come to a close this week and ended with a particularly strong build. The Energy Information Administration (EIA) has reported an injection of 91 Bcf into working storage, bringing current stores up to 3,571 Bcf. Despite the fact that this injection surpassed consensus projections for a build in the range of 83-87 Bcf, and the fact that this number more than doubles the 5-year average net injection of 42 Bcf, the market was unable to keep a lid on energy prices. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 7.7% closing at $0.4040/therm while the 12-month average price for peak power on the PJM similarly rose 8%.
It seems there are two major factors contributing to the current volatility in the market. First, is the forecast for the return of cold weather to most of the United States? The Polar Vortex is back. Accuweather reports that a blast of cold will push into the United States early next week, bringing with it "December-like cold" temperatures throughout the South and along the Atlantic Seaboard. This extreme and early onset of cold will usher in increased demand for heating and could place even more upward pressure on energy prices.
The second variable that seems to have impacted the market this week, and could continue to do so in the weeks ahead considering the chilly forecast, is the coal shortage. Coal currently accounts for 39% of all power generation in the United States. However, energy companies have been reporting low stocks, citing transport and rail issues as major culprits. If this problem persists, energy producers may turn to natural gas to produce energy at peak demand this winter. As some of you may recall, we experienced a similar situation last winter when the coal stock piles were frozen and could not be utilized. The end result was upward pressure on energy prices.