Volume 12, Issue 27 | July 25, 2014

Editor's Note

Up And Down

Week in Review for July 18 - July 24, 2014

For this seven day report period, energy prices dropped for the sixth straight week. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 2.4% closing at $0.388/therm and the 12-month average price for peak power on the PJM fell 2%.

As you may recall, this past winter was brutally cold and energy demand spiked to meet the heating demand.  As a result of this winter's demand spike, energy prices spiked. From November 1, 2013 to March 31, 2014, NYMEX gas prices for the 12 month strip rose 27% while the peak power prices on the PJM rose by 27%. High demand created high prices. 

Conversely, so far this summer, we have not experienced the on-set of any sustained, brutally hot weather in most of the country. As a result, demand is low and energy prices have started to fall. Since June 12, 2014, the 12 month strip price for natural gas on NYMEX dropped 16% and the 12-month average price for peak power on the PJM dropped 13.6%.  Ultimately, the weather gets a lot of the credit for this downward trend just like the weather got the blame for the winter's price spike. 

Thanks to lack of any sustained heat waves and the record-high gas production coming out of the shale formations, the unused natural gas has been diverted from the power plants to the storage fields.  We are halfway through the injection season and we have cut the storage deficit in half.  This week the natural gas storage fields are running 23% below the five-year average. 

Although we still have a large storage deficit to address, industry analysts seem optimist that the caverns can be re-filled to 3,400 Bcf by November 1st.  Weather is the wild card. We still have to deal with the dog days of August and the hurricane season. This may be a good time to consider the early renewal strategy.


Natural Gas Fundamentals

Natural Gas Storage Update: Injection Season Hits Midway Point

 

 

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 

2,219

2,129

90

2,780

2,902

This week's injection was 90 Bcf.  Although 9 of the last 11 injections had been over 100 Bcf, this week's injection of 90 Bcf was still a huge injection for this time of year.  In fact, this week's injection was 95% larger than the five-year average injection of 46 Bcf. 

This was the 14th consecutive injection that registered above the 5 year average. As a result of these unusually large injections, the record storage deficit continued to shrink. On April 3, 2014, after the brutally cold winter, the storage fields were 55% below the five-year average. However, this week the natural gas storage fields were running 23% below the five-year average, 

We are halfway through the injection season and we have cut the storage deficit  in half. The injection season runs April 1- October 31. The analysts appear more optimistic that we can refill the caverns to 3,400 Bcf by November 1st.  We need 15 more consecutive injections above 78 Bcf to hit the target.


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 July 18, 2014 was 315 rigs. This number remained unchanged from the previous week. The count is 54 rigs lower than the count reported this same week last year. We are 57% below the five-year average gas rig count of 735.


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-13

$0.3459

Dec-13

$0.3818

Apr-14

$0.4584

Sept-13

$0.3567

Jan-14

$0.4407

May-14

$0.4795

Oct-13

$0.3498

Feb-14

$0.5557

June-14

$0.4619

Nov-13

$0.3497

Mar-14

$0.4855

July-14

$0.4400


NYMEX Values per Month for the Forward 12 Months

Thursday, July 24, 2014

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

Aug-14

$0.3847

Jan-15

$0.4054

June-15

$0.3771

Sept-14

$0.3850

Feb-15

$0.4040

July-15

$0.3805

Oct-14

$0.3859

Mar-15

$0.3966

12-month avg.

$0.3881

Nov-14

$0.3906

Apr-15

$0.3746

11/2014-3/2015

$0.4011

Dec-14

$0.3985

May-15

$0.3737

Crude Oil

$105/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 - 14

June 14

July - 14

Aug- 14

Sept- 14

Oct - 14

 Actual

  148

 372

 

 

 

 Normal

 108

 314 

 

 

 Departure from Normal

 37%

   18% 

         

 

 

 

 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.