For this seven-day report period, the average 12-month price for natural gas on NYMEX fell less than 1% closing at $0.354/therm. Conversely, the 12-month average price for peak power on the PJM actually rose 3%.
This was the second week in a row that we experienced a minimal run on both natural gas and electricity prices. Both commodities have been trading in tight range over the last two weeks. Apparently everyone is waiting to see if we will have a cold, warm or normal winter.
Stay tuned. Winter officially begins Sunday, December 21, 2104 at 6:03 pm. According to NOAA, the extended forecast for the period of December 24, 2014 to January 1, 2015 is colder than normal east of the Mississippi.
Besides the weather, below are two other variables we should continue to monitor.
On the natural gas storage side, the last three gas withdrawals were smaller than normal which helped reduce the storage deficit that resulted from last year's brutally cold temperatures. After this week's small withdrawal, the storage fields were only 7.3% below the five-year average. If we can erase the storage deficit, we may see some downward pressure on prices.
The second variable to watch is the fuel mix used at the power plants within the Unites States. At the end of 2013, according to EIA, coal produced 39% of our electricity, natural gas produced 27%, nuclear produced 19%, hydro- power produced 7% and renewable energy accounted for 6% of the electricity produced in our country. Big changes are on the horizon for the power plants however and according to a recent article in Gas Daily, "another major change in the power market in 2015 will be the retirement of a large number of coal-fired power plants. Bentek is tracking a total of 14,834 MW of coal retirements planned for 2015 which accounts for 80% of all planned retirements in the US for the year, and approximately 4.5% of the total currently operating coal capacity."
As coal plants are retired, more and more power plants will need natural gas and renewables like wind and solar to produce their electricity and replace the coal. As more coal plants are retired, we may see more volatility in both natural gas and electricity prices during unusually cold winters or unusually hot summers.
There are many variables that impact energy prices but for now, all eyes are focused on the pending weather for January, 2015.