Summer 2016 Energy Forecast
As we say goodbye to El Niňo, summer temperatures heat up, and your buildings start to use more energy to stay cool, it’s tempting to wish for a crystal ball to tell you where energy prices are going. Whether you’re on your utility’s rate or already signed onto a contract with a separate supplier, you might be keeping your eyes peeled for where rates are expected to go to keep your utility budget in check. And while no one can truly predict where energy prices are going, we can examine all the factors affecting the energy market for a forecast. Let’s take a look:
Although many enjoyed the lowest natural gas prices in 17 years this past winter, you might be surprised to learn that prices have shot up over the last 3 months. To give you a better picture, natural gas closed at $2.75 on June 20, which is up more than 20% since May and a whopping 70% since hitting historic lows in March.
Natural gas storage is currently at record high levels, but injections of natural gas into storage have fallen short of the five-year average for the past several weeks. Why? Production has slowed as a result of recent low rates, which is helping drive the recent increase in prices. On top of that, producers have reduced the number of drilling rigs and shut down wells as they wait for higher rates, while demand for new gas generation has increased at the same time. According to the U.S. Energy Information Administration (EIA), natural gas has surpassed coal as the no.1 generation fuel and will continue to grow in importance.
Where are natural gas prices headed?
While we can’t say for sure, the EIA forecasts that we might see prices trending upward as demand from the electric power sector increases. If you’re hoping we might get back to the historically low prices we enjoyed earlier this spring, you might want to hold your dice. Want some good news? Forecasted prices still remain lower than they were last summer.
While natural gas prices have seen some volatility in the past several months, electricity prices have remained largely unchanged from 2015, with prices averaging a little over $0.12 per kWh. According to the EIA, the retail price of electricity for the residential sector averaged $0.13 per kilowatt hour (kWh) in June. The National Oceanic and Atmospheric Administration (NOAA) projects cooler temperatures for the U.S. overall this summer, leading to lowered use of electricity for air conditioning. On top of that, total U.S. generation of electricity is forecast to average 11,140 gigawatt hours per day (GWh/d), which is 0.5% lower than total generation in 2015.
What does this mean for electricity prices?
The EIA projects that U.S. retail sales of electricity to the residential sector this summer will average 0.1% less than last year, while retail sales of electricity to the commercial and industrial sectors are likely to grow by 0.5% and 0.2%, respectively. Going even further to 2017, they’re likely to rise by 2.5% in 2017 to an annual average of $0.13 per kWh.
While renewable energy sources have previously been a more expensive option, the cost has steadily decreased over the past several years, especially as production and consumption have increased. In fact, the EIA expects total renewables used in the electric power sector to increase by 13% in 2016! In the case of solar, solar prices have dropped by about 78% over the last 15 years, from $3.25 per watt in 2006 to $0.30 per watt in 2015. However, not all renewables are at cost parity with conventional fuels yet, meaning, they can affect utility rates depending on which state you live in. On top of this, utility generation is driven by renewable portfolio standards, which can raise the price.
Here’s where renewable prices are headed:
Utility-scale solar power generation is expected to grow by 14 gigawatts from 2015 to 2017 and hydropower generation in the electric power sector is forecasted to increase by 11.2% this year alone. Generation from other renewable sources is expected to grow by 14.5% this year, with wind capacity forecasted to increase by 10%. On top of that, according to a survey released by PricewaterhouseCoopers, the majority of of the nation’s largest corporations intend to purchase renewable energy within the next 18 months. With increased renewable energy generation and adoption, especially by the business sector, costs are expected to continue to decrease. At the same time, it’s become very easy to procure renewable energy credits from a supplier (just ask your broker)!
Like natural gas, oil prices sank to a historic 12-year low of $31/barrel (b) earlier this year, then prices started climbing, and reached an average of $47 barrels per day (b/d) in May. At the same time, crude oil production this spring averaged 8.7 million b/d, (about 1 million b/d less than last year). What caused the increase? Global oil supply outages were the main culprit, along with rising oil demand and falling U.S. production.
What should you expect in the coming months?
While oil production is projected to dip slightly to 8.6 million b/d for 2016, the EIA expects this to limit upward pressure on prices this summer. However, slower expected growth in global oil inventories is projected by the EIA to contribute to prices rising slightly higher to around $47/b in the 3rd quarter, with prices forecasted to continue to rise in the first half of 2017.
While more than 90% of U.S. coal consumption is by the electric power sector, competition from lower natural gas prices and warmer temperatures this past winter is expected to result in a 10% decline in coal consumption this year. On top of that, production is expected to decrease by 17%, the largest since energy data collection began in 1949. The EIA estimates that the delivered coal price averaged $2.23 million British Thermal Units (MMBtu) in 2015. It’s expected that prices will dip in 2016 to $2.18/MMBtu and rise slightly in 2017.
Volatility doesn’t have to control your energy budget
While we can examine all the factors at play affecting the energy market, no one can ever say for sure where it’s headed (if we did, we’d all be busy counting our gold)! The one thing we can say with absolute certainty, is that the energy market is volatile by nature.
So how is it possible to gain any control over your costs? Simple, transparent, and tech-driven energy procurement with WegoPower allows you to easily lock-in favorable supply contract rates so you can take the uncertainty out of budgeting.