May 2 What are we thinking about energy markets at this point in the spring?
In general, we had a warm winter, and the EIA natural gas storage numbers were above the 5 year average. However, gas prices have moved up considerably in percentage, (30%) over this time last year. The reason is the expectations of a hot summer, and high electric use, most of which will come from gas fired sources. As a result, we are recommending customers wait a while on the longer term hedging as it is unclear if the prices are sustainable. Large quantities of Shale Gas are still coming into the market, and a lot of rigs are shut in. We may not know until August what a reasonable price level for this winter should be. Longer term hedgers who sign up three or four years out will find reasonable pricing. They may miss a few short term buying opportunities, but on the whole, prices for the long term are low.
Electric markets continue to have low prices on the spot markets and very short term, but slightly higher commodity price for the intermediate term following the discussion in the Natural Gas section. There continues to be a concern as to capacity availability. Demand continues down from historic levels, especially in the manufacturing sector. Coal plants that announced retirement rather than try to comply with the Obama administration rules on emissions are the wild card. If demand returns, and the coal plants go off line, we are short of needed capacity despite the growth of renewables. If neither happens, then we are in balance with the addition of natural gas fired turbines at a reasonable rate. The other question is the nuclear fleet. They are nearing the end of their usable life. There are two new units coming on line, and approval of a standard design to make construction easier. But cost to construct, and spent fuel questions continue to make that option extremely risky in the US. It is interesting that the African nations and some of the emerging continues in East Asia are going to this option for their power. In general, long term capacity offerings have tended up, but whether they will stay there is questionable.
Gasoline prices have rebounded slightly with the threat of war and disarray in the Middle East, particularly Syria. However, shale gas has developed shale oil in the US, and so we have leveled off at a retail price around $2.50 per gallon, and crude oil seems to have a ceiling in trading around $50. So this looks like status quo through the summer, until another possible lull in the fall when US driving tails off.