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Q2 2018

The RealPage Energy Outlook

A quarterly publication providing detailed information on the forces that affect your energy rates.

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Get the details on pricing trends, weather, storage levels, tariffs and more.


The Energy Outlook is designed to inform you about the current state of the natural gas and electric energy markets. While prices are most important, we offer insights into the drivers of the energy markets and shed some light on how these drivers impact market prices. The primary energy market drivers fall into 2 areas: Fundamentals and Politics.

  • Fundamentals are the factors influencing energy supply and demand of electricity and natural gas. Supply factors include power generation, natural gas production (drilling rigs, fracking, and horizontal boring), underground gas storage, and pipeline capacity. Demand factors include consumer usage and weather (driving how much energy is required for heating and air conditioning seasons).
  • Politics include changes to the legal and regulatory environment that can cause major moves in energy prices. Political impacts can be new emission standards such as mandated movement to cleaner generation facilities with higher operating costs, new energy taxes or fees, and restrictions on new pipeline or transmission line placement. Political factors can be domestic or international.


Prices Have Been Fluctuating

In January and February, natural gas prices spiked, and then in March, they retreated back to 2015 levels. Weather-wise, temperatures for the second quarter are expected to be above normal. Gas storage levels are low, but long-term pricing appears unfazed. Natural gas production is strong and is holding off price advances for now.

Natural Gas Storage

Storage Levels Are Low, but Markets Appear Unfazed

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The Energy Information Administration’s (EIA) Natural Gas Storage Report shows storage is significantly below historic levels. The current storage level of 1,383 Bcf is 32.7% under last year’s levels, and 15.9% below the 5-year average level. This is mainly due to the extreme winter conditions in the Northeast. Typically, low storage levels raise concerns, and prices increase as a result. However, the energy markets appear to be unfazed by the low levels, even with the prolonged and colder-than-expected winter temperatures in the Midwest and Northeast.

In March, U.S. dry gas production reached an all-time high at 78.4 Bcf/day, causing analysts to believe natural gas production is strong and will continue to grow. In April, we customarily switch from the Withdrawal Season (pulling gas out of storage to supplement the winter heating season) to the Injection Season (rebuilding underground storage via overproduction). We should look toward our summer temperatures to determine the extent of injections and storage re-builds.

The current storage level of 1,383 Bcf is 32.7% under last year’s levels, and 15.9% below the 5-year average level.

Natural Gas Storage Levels (Bcf)
Current Storage Level 1,383
Storage - One Year Ago 2,055
5-Year Average Level 1,729

Weather Forecast

Much of the Country Expects Above-Normal Temperatures


The NOAA weather service is predicting a high probability of above-average temperatures across most of the continental U.S. Texas, New Mexico, Arizona and Florida are set to experience temperatures well above normal. Only Montana and the surrounding areas are forecast to have below normal temperatures.

Temperatures play a significant role in driving energy prices. These higher Q2 temps may accelerate the need for natural gas-fired electricity generation to power higher air conditioning loads. The demand for gas to fuel power generation could divert gas targeted for the spring storage build-up.


As we move into Q2, the US drought is predicted to worsen across California, the Southwest, and parts of the High Plains. Heavy winter rainfall has eliminated drought conditions across the lower Mississippi Valley, eastern Oklahoma, and northeast Texas.

The drought outlook through June 2018 indicates persistence of ongoing drought conditions across Oregon, California, and the Southwest. In addition, drought conditions may intensify and expand into much of Texas and Oklahoma, as well as southern Georgia and parts of South Carolina.

Kansas, Missouri and the Northern Great Plains are predicted to show improvement or removal of drought conditions during the next three months. Drought removal is likely across the small drought areas depicted across the mid-Atlantic.

Drought conditions may bring possible water restrictions and price penalties, as local water districts struggle to maintain adequate water supplies.

Energy Prices

Energy Prices Spiked and Retreated

The Energy Outlook mainly focuses on natural gas prices because gas prices lead electricity prices. As natural gas prices increase or decrease, electricity prices often follow suit – but hours, days or weeks later. Also, natural gas has a national price established on the NYMEX. Other regional prices and markets exist, but are compared with the NYMEX prices. Electricity is different because the U.S. is divided into 6 regional markets, each setting its own price and having its unique market rules. All six regions tend to move in the same direction, but price volatility and generation vary considerably between regions.

The Natural Gas Spot Price chart shown above illustrates the volatility of the energy markets, which resulted from the recent price spike experienced in January.

Daily prices jumped from $2.63 / MMBtu to $6.24 in just a few days’ time. Subsequent spikes were felt over the remainder of January. The predominant cause was the many Nor’easters that hit the east coast. If you were on a variable rate, you should have already received your energy invoices and the bad news. Many energy budgets have already been crushed this year.

The good news is prices have retreated and are now at very attractive rates which indicates that the marketplace could not sustain January’s price spikes. May prices are hovering around $2.70/MMBtu. The shoulder months of April and May are predicted to deliver flat prices. The next price point will be in June as the summer air conditioning season gets started. Let’s learn from our recent price spikes and think about locking in long-term as prices remain stable and low.

Looking long-term, the 12-month natural gas strip prices remain at $2.88 and Calendar 2019 and 2020 strip prices are trading at $2.79 and $2.78 respectively. The 12-month electric prices across the country have risen slightly in March.

Regional Outlook

Prices Are Rising in Some Regions

Energy markets are complex, with many regional markets affecting the whole. The regional markets may differ from the overall continental energy outlook. Below are regional energy news of note and the factors driving market conditions.


The Northeast continues to be plagued by cold weather. With each additional cold weather system, the region will continue to be hit with additional price spikes. Even in early April, the region saw single day price swings from $2.42 to $7.23 /MMBtu. The regional natural gas pipelines have been severely restricted, driving more price volatility. Capacity is the main driving force, especially in the New England area.


Midwest LMP prices are rising as summer approaches. Midwest electric prices have risen about 2% for 12-month strip prices. Despite the increase, prices remain attractive.


California energy prices remain consistent. California natural gas prices have generally decreased as a result of warmer temps. Southern Cal, Northern Cal and the Southern Cal border all have experienced drops in pricing, down to $3.08 /MMBtu, $2.59 and $2.04 respectively.


Texas energy markets are experiencing price bumps. Texas’ ERCOT 12-month strip prices have begun to rise. Last year we were seeing fixed all-in pricing at the $0.04 per kWh range and now we are often surpassing the $0.05 per kWh mark. Expect power costs to mimic the weather. As temperatures increase, so will electricity prices.

Bottom Line

Natural Gas Prices Spiked and Retreated – Take Advantage of Them!

In January and February, natural gas prices spiked, and then in March, they retreated back to 2015 levels. Long-term gas prices have dropped under $2.90 through 2021. Weather-wise, temperatures are expected to be above normal for Q2. Gas storage levels are low, but are not impacting long-term pricing yet. Natural gas production is strong and holding off price advances for now.

The shoulder months of Q2 typically deliver stable and low prices. It’s a good time to re-think your long-range energy procurement strategy before the predicted hot temps hit us this summer.


What happens to our budget?

What happens to our budget if natural gas prices spike this winter or electricity prices spike this summer?

What is our risk management?

What is our risk management policy to protect the business against energy price volatility?

What is our risk tolerance?

Do we want budget certainty with fixed prices or do we want current market prices and the associated risk of cost fluctuations?

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