Prices for electricity and natural gas are nearing record lows, making this a great time for customers to purchase their power ahead of time.
This is due to several factors, including a warmer-than-average weather outlook for spring, a surplus of natural gas supply and a pull-back in power prices.
Here’s what you need to know.
Warmer Weather Is Reducing Demand
For those living in the snow-covered regions of the Mid-Atlantic and Northeast, it seems hard to believe this winter has been relatively mild compared to last year and warmer-than-average temperatures are on the way. It’s true that last November was the coldest since 2000 and the eighth coldest nationally since 1950. However, this was followed by a warmer pattern in late November and early December. While certain regions have clearly had cold snaps throughout the winter, they haven’t been as widespread and long-lasting as the cold we experienced during last year’s Polar Vortex.
This means demand has fallen compared to last year, contributing to lower prices.
Now that the worst appears to be over and spring is just a few weeks away, the National Weather Service is forecasting a warm spring for the West, Mid-Atlantic and Northeast regions and a warmer-than-average summer along both coasts.
Natural Gas Surplus Keeps Prices Low
Withdrawals from natural gas storage continue to be well below what we experienced last year. In 11 of the last 13 weeks, natural gas withdrawals were smaller than last year. We saw a brief uptick in January, but recovering production and inconsistent demand for heating kept more natural gas in storage. Unless temperatures remain cold through March, we’re on pace to end the season with a surplus.
By contrast, last year’s heating season ended with a deficit in natural gas supply. The elimination of that deficit cut natural gas prices on the NYMEX almost in half. This historical correlation between the gas storage surplus and deficit and the NYMEX 12-month strip, as well as estimates of end-of-season storage, suggest prices could fall even lower this spring.
Gas Consumption Will Reach An All-Time High
With natural gas prices this low, we can expect power companies to use more natural gas and reduce their reliance on coal. We’ve seen an upward trend in natural gas consumption by power companies for the past decade, but now it’s on track to reach record levels, according to the Energy Information Administration.
Gas demand in the power sector is 6 percent higher than in 2014 and 16 percent above the five-year average level. More power companies are retiring aging coal plants and replacing them with natural gas units.
We can also expect to see a greater reliance on natural gas in the West, as less available water creates a decreased reliance on hydropower. In late January, snowpack levels were only about 25-40 percent of what they are normally are, and a weakening El Nino looks to be bringing less rain, which could create a drought in early spring. During a good water year, hydropower can contribute to up to 30 percent of the power generation mix in the summer, which isn’t likely to happen this year.
As power companies consume more gas and production tapers off in 2015, we should expect to see natural gas prices eventually bottom out.
Now Is the Time To Buy
As natural gas prices continue to fall, long-term power prices, too, are within 1-2 percent of all-time lows. Since the start of the winter, prices have been down an average of $5.49 per mWh.
Taking advantage of these low prices now by purchasing a portion of your energy in advance can help offset the rising costs of capacity and transmission, which are occurring as power companies retire aging plants and build new infrastructure.
BCC offers a variety of energy pricing options, including the ability to lock in prices over the term of your contract, make smaller purchases over time based on market fluctuations or use a combination of these strategies.
Our energy management experts can help you identify the right solution to meet your needs. We also offer a variety of energy management tools that allow you to monitor prices and make smarter purchases based on the market.
Learn more about how you can be a proactive energy consumer with our pricing options and energy management tools—contact us today.