RD Energy Stay Current Newsletter: December – High Coal Prices Are Pushing Electric Prices Up!

RD Energy Stay Current Newsletter: December – High Coal Prices Are Pushing Electric Prices Up!

 

 

Key Drivers

  1. Above normal temperature forecasts for the first week of December
  2. New higher LNG record exports in November to Europe and Asia
  3. Highest coal prices in over a decade
  4. Colder temperatures and possible snowstorm in week 2 of December

Commentary

Fact: Natural gas is the key driver of electric prices.  
False: The two run 100% parallel with each other.

Historically natural gas prices and electric prices run in tandem at a 80 – 85% pace.  Currently that pace is more like 60 – 70% as the highest coal prices in over a decade are causing a higher divergence between natural gas and electric prices.  Why are coal prices surging?  First of all while many power generators converted from coal use to natural gas use in years past.  Many times the power generators have the ability to convert back to coal when natural gas prices exceed coal prices.  Due to the recent surge in natural gas prices the past six months every power plant that can has converted back to coal as much as they can.  Now power plants throughout much of the U.S. is experiencing the lowest level of coal inventory since the 1970s.  The new demand for coal from these power plants has helped push coal prices up to their highest levels in over a decade and in turn has increased the price for electric.  Customers are confused when they see natural gas prices dipping to the lowest levels in several months, but electric pricing not only not following suite, but are actually rising.

In the Midwest and Northeast we had a pretty cold November.  December is starting out warmer than normal pushing the trading mentality to sell the market and bring NYMEX natural gas prices down.  Will these lower prices keep trending down after hitting a 5 year peak prices in late October?  Will the next change to colder weather forecasts push prices up? Will LNG’s continued record setting export growth push prices up?  Will the next new piece of important industry data help push prices up? Time will tell, prices will remain volatile.

It’s never been more important to have an energy partner like RD Energy who watches and tracks market trends to help our clients build an electric and natural gas buying strategy based on a strong working knowledge of the energy industry, collecting competitive offers from our strong portfolio of energy suppliers and incorporating other PJM cost shaving programs for customers that qualify.  As we transition to 2022 we expect price volatility to continue as domestic and global happenings has strong influence on energy prices more than any time in the past.  If you have questions about what you should be doing to be better positioned to meet your business’ energy requirements while trying to control the price volatility impact, please feel free to contact us.

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