Electricity prices fell Thursday morning upon release of the latest natural gas storage report. According to the Energy Information Agency there was a withdrawal of 115 billion cubic feet of natural gas during the week of January 29th. The consensus among insiders was that there would be a draw of approximately 122 bcf.
The same week last year we saw a withdrawal of 194 bcf, while the five year average for the week is 178 bcf. As of this writing March natural gas was down about 6.5 cents to $5.35 / mmbtu, after hitting a morning low $5.23. The market remains soft and the next few weeks will be increasingly important as we try to gauge where our inventories will be at the end of this heating season. For now the market remains bearish.
So are we looking at another year of $4-6 gas? At this point it is hard to tell, but we are seeing many commercial electricity users taking this opportunity to extend contracts as far as their credit will allow. It’s hard not to consider locking in now if you simply think back to the summer of 2008 when we saw electricity rates spike to over 20 cents for some buyers. The credit market seems to be thawing a bit, and several Retail Electricity Providers are offering 60 month terms again.
It is too early to start making predictions about the balance of 2010. The uncertainty in the economy is compounded by conflicting views about what production will look like in 2010. Although rig counts were slashed in 2009, it has not been enough to significantly impact the production according to recent production reports. It’s getting tougher to accurately predict production rates as techonology continues to change the game and more unconventional plays are factored into the domestic market. Not to mention the emerging LNG market which brings a new international component to the picture.