Volume 10, Issue 42 | October 19, 2012

Editor's Note

The Five-Week Price Spike Halted

Week in Review for October 12-18, 2012

Finally, after five weeks of price increases, energy prices closed flat this week. For this seven-day report period, the average 12-month price for natural gas on the NYMEX was nearly identical to last week's close, and the 12-month average price for peak power on the PJM was also flat relative to last week's closing numbers.

As you may recall, natural gas and electricity prices spiked upward during the previous five weeks. From September 7 to October 11, 2012, natural gas prices rose approximately 17.4% and electricity prices rose 8.1%. According to most analysts, the onset of cold weather was the fundamental variable that kept upward pressure on energy prices during that cool five-week period. Consumers were turning on their space heaters.

However, as referenced in last week's "Editor's Note," we were curious how market prices would respond this week to the six to10-day forecast calling for warmer-than-normal temperatures in the northeastern United States. We have our answer. The return to normal weather helped place a halt to the recent price spikes. Stay tuned. The eight to 14 day forecast, once again, calls for above-average temperatures east of the Mississippi.


Natural Gas Fundamentals

Natural Gas Storage: Why Does the Bubble Continue To Shrink? Data Released Oct. 18, 2012

 

 

Current Week

Last Week 

Net Change 

This Week Last Year 

Prior 5 Year Average 

 

Stocks (Bcf) 

Stocks (Bcf) 

(Bcf) 

Stocks (Bcf) 

Average (Bcf) 

Total Lower 48 

3,776 

3,725 

51 

3595 

3527 

Storage Update: With two weeks left in the traditional injection season it does not appear that storage capacity will max out. It's likely that the storage season will end with approximately 4,000 Bcf. in storage.

Throughout the summer months, the gas injections were well below average because natural gas was consumed by the electric power generators, leaving less gas available for injection into the storage caverns.

For this report week, natural gas injections were, once again, below average. This week's injection was only 51 Bcf. Last year at this time we saw an injection of 106 Bcf. The five-year average injection for this week was 71 Bcf. Thus, the natural gas storage surplus, on a year-to-year basis, shrank from 6.8% above last year's levels to only 5% above last year's levels. The natural gas storage surplus over the five-year average shrank from 7.8% to 7.1%.

Even though the gas injections were below normal all summer, the natural gas storage fields will still be near capacity on November 1. Of concern, however, is how fast the gas bubble shrank over the summer months. Since May 3, 2012, the gas surplus has shrunk from 55% above the five-year average to only 7% above the five-year average.

The conclusion from this year's injection season is that natural gas, at these price levels, is in high demand during the summer months to generate electric power and in the winter months for heating.


Baker Hughes Rotary Rig Count For Natural Gas

Weekly Drilling Rig Update: The active U.S. gas rotary rig count released by Baker and Hughes for the week ending October 12, 2012 was 422 rigs. This was a decrease of fifteen rigs from the previous week. The count is 514 rigs lower than the count reported this same week last year. We are 59% below the five-year average gas rig count of 1,029.


NYMEX Natural Gas Monthly Settlements For the Past 12 Months

(Price per therm at the well-head)

This was the closing price of gas at the well head for each of the past 12 months. The closing price for a month occurs on the 3rd business day prior to the start of the month. 

Nov-11

$0.3524

Mar-12

$0.2446

July-12

$0.2774

Dec-11

$0.3364

April-12

$0.2191

Aug-12 

$0.3010

Jan-12

$0.3084

May-12

$0.2036

Sept-12 

$0.2634

Feb-12

$0.2678

June-12

$0.2429

Oct-12

$0.3023


NYMEX Values Per Month For the Forward 12 Months

Thursday, October 18, 2012

(NYMEX - Price per therm at the Henry Hub well-head)

Nov-12

$0.3587

April-13

$0.3941

Sep-13

$0.4050

Dec-12

$0.3904

May-13

$0.3960

Oct-13

$0.4085

Jan-13

$0.4028

June-13

$0.3993

12-month avg.

$0.3971

Feb-13

$0.4036

July-13

$0.4031

11/12-3/13

$0.39096

Mar-13

$0.3993

Aug-13

$0.4048

Crude Oil

$91/barrel 


NYMEX Graph For Natural Gas - 12 Month Average Price Per Therm at Louisiana Well-Head

(Excludes Interstate Transportation)

 


PJM Electricity

Graph - PJM 12-Month Average Peak Power Price

On-Peak 1 Year Forward Price


Weather

Local Cooling Degree Days*

 

Cooling Degree Days** 

 

May - 12

June - 12

July - 12

Aug - 12

Sept - 12

Oct- 12 

 Actual

209

346

595

501

229

 

 Normal

108

314

457

406

202

 

 Departure from Normal

93.5%

10% 

30%

23%

13.4%

 

Warmer

Warmer

Warmer

Warmer

Warmer

 

**Cooling degree days are calculated by comparing the day’s average temperature to a 65 degree baseline.  If the day’s average temperature is below 65, there are no cooling degree days that day.  If the average temperature is greater than 65 degrees, then subtract 65 from the average temperature to find the number of cooling degree days.