Volume 11, Issue 36 | September 13, 2013

Editor's Note

Prices Remain Flat and Low For Now

Week in Review for September 6-12, 2013

For the third week in a row, both natural gas and electricity prices closed relatively flat. During this week's seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose less than 1% and the 12-month average price for peak power on the PJM rose less than 1%.

Prices are range-bound and continue trading near their second lowest level in nine years. Prices are low because supply is high and demand is low, at least for now. Where do prices go from here?

On the supply side, the natural gas storage fields are 1% above the five-year average. Additionally, natural gas production numbers are at an all-time high. The last time production numbers approached today's levels was between 1970-1977. These high supply numbers have kept a lid on energy prices.

However, on the demand side there are a few variables that could begin placing upward pressure on energy prices. First, as always, there is the weather. According to the Farmers Almanac, 66% of the nation is expected to experience below average temperatures during the winter of 2013-2014. Unusually colder weather tends to place upward pressure on energy prices.

A second wild card to watch on the demand side is the export of liquefied natural gas (LNG). According to a recent article in the Washington Post, the U.S. Department of Energy just approved a "Dominion Resources proposal to export liquefied natural gas from Maryland's Western Shore, a plan that would tap into the surge in domestic production of gas extracted from shale. Dominion's approval is only the fourth such authorization the federal government has granted and the third since May." The concern is that the export of our domestic gas supplies will create a new demand component, likely placing upward pressure on natural gas prices.

The immediate question for now is whether these factors will create an energy price rally as we head into the winter heating season. It may be difficult for energy prices to sustain a major rally during the next few weeks because we are entering the "shoulder" months, with minimal demand either for heating or cooling. However, price volatility is likely to return as soon as we get our first cold weather forecast, or in the event that a fifth LNG export facility is approved.


Natural Gas Fundamentals

Natural Gas Storage: Levels Still Above Five Year Average. Data Released September 12, 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 

3,253

3,188

+65

3,425

3,207

This week's reported injection was 65 Bcf. This injection was much larger than last year's injection of 27 Bcf, and 5% greater than the five-year average of 62 Bcf.

During the past five weeks, the natural gas injections have been above average. As a result, we have a respectable amount of gas in the storage fields. Storage levels are 1.4% above the five-year average. We should have plenty of gas in storage as we enter the heating season.


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 September 6, 2013 was 394 rigs. This was an increase of fourteen rigs from the previous week. The count is 58 rigs lower than the count reported this same week last year. We are 54% below the five-year average gas rig count of 860.


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. 

Oct-12

$0.3023

Feb-13

$0.3226

June-13

$0.4148

Nov-12

$0.3471

Mar-13

$0.3427

July-13

$0.3707

Dec-12

$0.3696

April-13

$0.3976

Aug-13

$0.3459

Jan-13

$0.3354

May-13

$0.4152

Sept-13

$0.3567


NYMEX Values per Month for the Forward 12 Months

Thursday, September 12, 2013

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

Oct-13

$0.3638

Mar-14

$0.3905

Aug-14

$0.3922

Nov-13

$0.3712

April-14

$0.3829

Sept-14

$0.3922

Dec-13

$0.3857

May-14

$0.3846

12-month avg.

$0.3858

Jan-14

$0.3943

June-14

$0.3874

11/2013-03/2014

$0.38722

Feb-14

$0.3944

July-14

$0.3904

Crude Oil

$108/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

511

383


 


 

 Normal

108

314 

457

406


 


 

 Departure from Normal

33%

12%

         12%

6%

 

 

Warmer

Warmer 

Warmer

Cooler 

 

 

****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.