Electric & Natural Gas Prices Surging Over 250%
Businesses’ that paid $.33/ccf last winter could be paying $.73/ccf this winter.
Manufacturers who were quoted fixed rates at .037/kWh for multiple terms earlier this year will be seeing rates around $.047/kWh
Commentary
Natural Gas NYMEX is rising fast and furious. September NYMEX settled for the month at $4.37/MMBTU in late August. This was the second highest settlement price since December 2018 and the 4th highest since January and February 2014. Since then NYEX has gone up much more. Today natural gas NYMEX is trading over $5.20/MMBTU. Only February 2014 settled higher at $5.557/MMBTU due to a historic Polar Vortex event the month before. Historically when NYMEX prices rises this fast “Speculators” buying NYMEX contracts creates a type of fake demand as they create hysteria for consumers to buy and they reap the profits as they sell to the new consumer buyers. This time, however, it appears that the speculators have actually shortened their buying positions while the wholesale market has climbed. This is worrisome for two basic reasons. First, it indicates that prices won’t technically “correct” back down a sizeable amount when the buying squeeze ends since a technical buying squeeze doesn’t actually appear to be happening. Secondly, it points out the vast majority of buying is being done based on fundamental reasons and are not technically driven. Again, this means prices probably won’t fall fast unless we have some game-changing event like an abnormally warm winter that at this time isn’t predicted.
As you can see by the graph electric prices has risen pretty much in parallel with natural gas prices as expected since natural gas is the key driver of electric wholesale prices. Graphs for the First Energy, Vectren and CG&E electric utility markets are very similar. While it is true that two, three and four year fixed price offers are lower than a one year fixed rate offer today, the fact is all fixed rate offers regardless of term are up considerably from where they were just five months ago. One big question business consumers who haven’t locked things up and are up renewal in the next few months are asking is, “should we wait to buy in hopes this surge in pricing is about to collapse?” The answer is that there appears to be no false legs propping up the surge in prices that could break or disappear and lead the wholesale markets down substantially. Will the wholesale markets dip a little at times? Sure, but a small dip is often followed by another surge while buyers are waiting on the sidelines hoping for the dip to continue.
The fundamental reasons for the surge in prices are strong:
- A 600 bcf storage deficit versus 2020 storage levels.
- Gulf natural gas production shut down taking much needed supply off the market for weeks
- Record levels of LNG exports to Europe and Asia as prices in those markets hit the $20/MMBTU level
- Winter forecasts are coming in normal or below normal in much of the Midwest and northeast
- Fear that the U.S. will exit the 2021/2022 winter with an even greater storage deficit much above the 600 bcf
If you are a RD Energy client, then we’ve likely talked and have a plan in place or have already bought for an extended term. If you have any questions, please contact us at your convenience. If you are not currently a RD Energy customer, have a contract renewal coming up in the next few months, are on a variable rate or would like to discuss what your buying options in a volatile wholesale market like we’re experiencing today, please email or call me to start a strategy discussion. We look forward to helping anyone looking for answers who are concerned their business might not be as prepared as they should be for dramatic surge in wholesale electric and natural gas prices. There are a number of buying options available to lessen the immediate impact of the extremely high wholesale prices.