Prompt month gas ended the week down 3.7%, settling at $2.75 / mmbtu. The 12, 24, and 36-month contracts were also down, settling at $2.77; $2.73; and $2.70 / mmbtu. Cooling degree days are in line with historical averages but we have only just begun the high volatility summer season. Anticipate that peaking generation units will likely be called upon to serve the higher power demand brought on by increased air conditioning technologies. This will almost certainly lead to elevated market heat rates and increased electricity and natural gas costs for all customers who have not elected to lock their commodity costs with fixed price contracts. Keep in mind that the above gas prices are for the benchmark Henry Hub Index. The hot seasonal weather often leads to significant volatility in the basis difference between Henry Hub and your local gas index.
New gas storage levels came out on July 12, 2018 for the week ending July 6, 2018. The overall storage level ended the week at 2,203 MMBtu, a net weekly increase in the system of 51 BCF. Natural gas storage levels are 19.1% below the 5-year average, and 24.5% below where they were 12 months ago. Keep in mind that this is storage in the system. As you can see from the charts, the storage levels are markedly below historical averages, but there are still ample supplies of natural gas in the ground that has yet to be tapped by producers.
Variable rate plans are meant to be pegged to an index (keep these market movements in mind when evaluating comparable billing periods!). The low-price environment continues to present a great opportunity for commercial and residential customers to lock in power and gas rate plans for the next 12-month period and beyond.
Have a look at our cooling degree bar charts for your respective local markets. We track the weekly results over a 5-year period. As you can see, this summer has been a hot one throughout the country vs comparable periods. Increased cooling degree days leads to increased demand for electricity, which needs to be met with less efficient peaking power generation facilities. That causes price increases in your local market. You the customer have the choice of whether or not you want to accept that volatility through a variable rate contract or have your supply company manage that risk on your behalf. Another point to consider, when you accept a variable rate for your home or business, your rate is set at the discretion of your supply company. In other words, you have zero price protection, and are charged whatever the rate is your supply company wants to set irrespective of market influences. Cooling degree days is the benchmark indicator for natural gas demand, which is a great correlation to power prices in your local market. The more natural gas required to produce the mwh needed to cool buildings and residences, the more volatility in the wholesale and retail markets customers can expect to see.
Attractive opportunities are in the market for customers to hedge out the summer volatility season with fixed price contracts.