Volume 11, Issue 27 | July 5, 2013

Editor's Note

Weather Rules

Week in Review for June 21-27, 2013

Although natural gas and electricity prices were relatively flat during the prior two-week period of June 6 through June 20, the bears made a run this week. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 6%. The 12-month average price for peak power on the PJM fell 4%.

The two variables credited for this week's price drop were storage and weather.

On the natural gas storage side, this week's injection was 95 Bcf. Last year at this time we saw an injection of 58 Bcf. Thanks to a recent run of larger-than-normal injections, the storage deficit has continued to shrink. We are now only 1.2% below the five-year average. The larger-than-expected injection placed downward pressure on energy prices.

On the weather front, the National Oceanic and Atmospheric Administration's 6-10 day outlook for July 3-7, 2013, called for cooler-than-normal temperatures east of the Mississippi. Cool weather means more natural gas is available for injection into the storage fields. Large injections reduce the storage deficits and tend to place downward pressure on energy prices.

Do not be lulled to sleep however. Summer has just started and hot weather is on the menu. The reason that hot weather impacts energy prices is because more and more power plants are consuming natural gas to meet the country's air conditioning needs.

According to the Energy Information Administration (EIA), "the consumption of natural gas by electric power generators has been increasing each year since 2009 as lower natural gas prices allowed natural gas fired generators to compete with coal fired generators."

For the period of 1990-2010, coal fired generators produced approximately 50% of the country's mid-summer electricity. During the peak summer months of 2012, coal produced only 39% of the country's electricity. The facts indicate that natural gas demand at the power plants is increasing. This means a hotter-than-normal summer can impact energy prices more than ever before.


Natural Gas Fundamentals

Natural Gas Storage: Another Big Injection. Data Released June 27, 2013

 

 

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 

2,533

2,438

+95

3,055

2,564

Storage Update: One again, we saw another larger than expected injection this week. This week's injection was 95 Bcf.

Last year at this time, we saw an injection of 58 Bcf. The five-year average injection for this time period was 79 Bcf. Thanks to these large injections, the storage deficit continued to shrink. Natural gas inventories ended the week 17.1% below last year's levels. We are now only 1.2 % below the five-year average. As you may recall, on May 2, 2013, storage levels were 6.2% below the five-year average.

The traditional injection season runs from April 1 to October 31. If we keep pumping natural gas to the storage fields instead of the power plants, we may see some downward pressure on energy prices. However, summer just started and hot weather is on the way.


Rig Count for Natural Gas

Weekly Drilling Rig Update: The active U.S. gas rotary rig count for natural gas released by Baker and Hughes for the week ending June 21, 2013 was 349 rigs. This was a decrease of four rigs from the previous week. The count is 192 rigs lower than the count reported this same week last year. We are 61% below the five-year average gas rig count of 904.


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. 

Aug-12

$0.3010

Dec-12

$0.3696

April-13

$0.3976

Sept-12

$0.2634

Jan-13

$0.3354

May-13 

$0.4152

Oct-12

$0.3023

Feb-13

$0.3226

June-13

$0.4148

Nov-12

$0.3471

Mar-13

$0.3427

July-13

$0.3707


NYMEX Values per Month for the Forward 12 Months

Wednesday, July 3, 2013

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

Aug-13

$0.3690

Jan-14

$0.4012

June-14

$0.3946

Sept-13

$0.3689

Feb-14

$0.4012

July-14

$0.3982

Oct-13

$0.3703

Mar-14

$0.3976

12-month avg.

$0.3785

Nov-13

$0.3774

April-14

$0.3894

11/2013-03/2014

$0.38496

Dec-13

$0.3936

May-14

$0.3910

Crude Oil

$96/barrel 


NYMEX Graph for Natural Gas - 12 Month Average Price per Therm at the Louisiana Well-Head

(Excludes Interstate Transportation)



PJM Electricity

PJM Graph for Electricity - 12 Month Average Peak Power Price

On-Peak 1 Year Forward Price



Weather

Local Cooling Degree Days*


 

Cooling Degrees Day** 

 

May - 13

June - 13

July - 13

Aug - 13

Sept - 13

Oct- 13 

 Actual

144

        351





 Normal

108
        314




 Departure from Normal

33%
        12% 


 

 

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.