Well as suggested last quarter natural gas storage guided prices. In fact the large natural gas storage deficit relative to 2012 at the end of April created concerns about gas supply for next winter that pushed the one year power price for small commercial customers to nearly $.09/KWh. That is from the low established in April 2012 of $.067/KWh, an increase of over 33%! Recently the news about natural gas storage has improved and as a result power prices have fallen slightly. Since April 12th injections to natural gas storage have been 1,014 Bcf, compared to the five year average of 970 Bcf. In 2012 because of the warm winter and the resulting large surplus injections were only 653 Bcf. Even with these relatively large injections, 2013 natural gas storage remains in deficit to 2012 by 443 Bcf. The comparison to the five year average though shows that the deficit has nearly been erased. Take a look at the graphic below and it is apparent that the surplus that we experienced at the start of the past winter is not likely to be repeated.
Okay so what lies ahead? This is when I say, "That depends". Certainly natural gas storage is a key to the outlook but what is the key to storage? For the next quarter the driver will be the weather. As the hot weather builds more natural gas electric generation will come into play. In the past generation from coal would fill in the gaps during the summer but inexpensive natural gas prices and the onset of environmental regulations have sped up the retirement of coal plants and increased the use of natural gas. All of which is to say the hotter the weather the less natural gas will be injected into storage. In fact over the past three weeks as new 14 day weather outlooks have been announced, power prices have fluctuated roughly $.003 higher and lower depending on whether the outlook has called for hotter than normal or colder than normal weather.
Natural Gas Transportation
Constraints to the New England natural gas pipeline have not eased over the last quarter and are not expected to ease until 2016. Constraints create volatility and most buyers may want to avoid variable or market based products unless the product is being managed. The constraints also mean that occasional opportunities are created. Over the last month the cost of natural gas transportation slipped slightly which along with the improved news on natural gas storage has allowed power prices to drop.
CL&P Basic Service Reset:
On July 1st CL&P's basic service rates were reset from $.0781 to $.0776 a drop of only 0.5%. This was a surprisingly small decrease and one that indicates the direction of future resets. With such a small decrease in Basic Service Rates and with a power market that has gained over the past year it is very likely that the next CL&P reset will be higher. It may be time to consider getting ahead of this new direction.