We enter 2016 in a deflationary environment for natural gas and electricity. In this article we would like to review the price trends of 2015 and look at the current forward curves for natural gas and electricity and examine what some of the price drivers could be in 2016.
We started 2015 in the midst of price declines for both electricity and natural gas. Those trends continued for the first half of January 2015 but then both markets spent the next eight months consolidating in narrow ranges. In the middle of September, both natural gas and electricity prices broke their yearly lows and over the next three months grudgingly moved lower to levels not seen in a long time. Then, the last 2 weeks of the year, the markets retraced 50% of that 3-month move down.
To put this all in perspective, we will review the actual spot and forward price moves for both commodities. For natural gas spot prices, the Chicago City gate average daily price of $2.70 per mmbtu was the lowest yearly average since 1999 and was a year on year 50.77% decline from the 2014 polar vortex year (very high winter spot prices) price of $5.502 per mmbtu. The Henry Hub (liquidity hub for all USA natural gas pricing) 12-month rolling forward price declined 18.62% to close the year at $2.49 per mmbtu, the 24-month price lost 19.27% to $2.64 per mmbtu and the 36-month price experienced a 20.64% erosion to $2.73 per mmbtu. Even more dramatic, the price declines for two years since December 30, 2013 for the 12, 24 and 36 month rolling forwards have been 40.57%, 36.54% and 34.22% respectively.
