Volume 12, Issue 42 | November 14, 2014

Editor's Note

A Surprise Drop

Week in Review for November 7-13, 2014

In last week's report, we saw both natural gas and electricity prices jump up 8% as the anticipated arrival of our first cold snap spooked the market.  However, this week I am happy to say that energy prices normalized. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 6% closing at $0.3807/therm while the 12-month average price for peak power on the PJM also fell 6%. 

This week's price drop was a surprise. Energy prices seemed primed to rise again as heating demand spiked thanks to the arrival of our first serious cold snap. However, prices fell this week as the marketplace put on its coat, shrugged off the cold temperatures and chose to focus on longer term weather forecasts calling for a "normal winter."

As a side note, another possible reason for this week's price drop is that natural gas production is at an all-time high. Record high production has been able to keep prices in check over the last few months. 

However,do not be lulled to sleep. Winter is just getting started. Weather has a huge impact on energy prices. As you may recall, last year from November 1 to March 31, 2014, demand driven by the unusually cold winter weather wiped out the natural gas storage fields and caused natural gas and electricity prices to increase 22% and 27% respectively.

Stay tuned. If you can accurately predict the winter weather over the next few months, you can probably guess the short term direction of energy prices.


Natural Gas Fundamentals

Natural Gas Storage Update: Injection Season Is On The Way Out

 

 

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 

3,611

3,571

40

3,831

3,848

With the on-set of the heating season, starting November 1st we are unlikely to see many more injections.  The injections will soon disappear and we will begin to see withdrawals. For example, last week we saw a large injection of 91 Bcf. However, this week's injection was only 40 Bcf. 

We are exiting the injection season on a good note. This week's injection was small but still larger than the five-year average injection of 16 Bcf. In fact, this was the 30th consecutive injection above the five-year average. 

Although this may be our last injection until Spring, the gas storage fields are nearly full and we are ready for winter.


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 October 31, 2014 was 346 rigs. This was an increase of fourteen rigs from the previous week. The count is 14 rigs lower than the count reported this same week last year. We are 52% below the five-year average gas rig count of 717.


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. 

Dec-13

$0.3818

Apr-14

$0.4584

Aug-14

$0.3808

Jan-14

$0.4407

May-14

$0.4795

Sept-14

$0.3957

Feb-14

$0.5557

June-14

$0.4619

Oct-14

$0.3984

Mar-14

$0.4855

July-14

$0.4400

Nov-14

$0.3728


NYMEX Values per Month for the Forward 12 Months

Thursday, November 13, 2014

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

Dec-14

$0.3977

May-15

$0.3640

Oct-15

$0.3719

Jan-15

$0.4089

June-15

$0.3660

Nov-15

$0.3801

Feb-15

$0.4067

July-15

$0.3689

12-month avg.

$0.3807

Mar-15

$0.3980

Aug-15

$0.3700

11/2014-3/2015

$0.4028

Apr-15

$0.3677

Sept-15

$0.3689

Crude Oil

$ 74/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

453 

399

274 

46 

 Normal

 108

 314 

457 

406

202

34 

 Departure from Normal

 37%

   18% 

         1%

2% 

35% 

35% 

 Warmer

 Warmer

Cooler 

Cooler

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.