The April natural gas pulled back early Friday morning only to find buyers willing to buy wholesale contracts close to Thursday's settlement on Friday mid-morning and then additional buyers came and we were off to the races upwards by the close of Friday's trading. The April wholesale exchange contract settled up $0.159 on the day due to the colder than normal temperatures expected in the next six days which was enough to keep market prices high and getting higher since mid March. This week's EIA storage estimate is being forecasted to be a 5 bcf withdrawal while the follow week is being forecasted at a withdrawal of 50 bcf. We continue to believe that natural gas prices should continue higher in the short run due to short covering, colder than normal weather expectations and LNG being absorbed by Japan’s shortage of nuclear power.
As Japan slowly comes to grips with the devastation created by its earthquake and tsunami and ensuing nuclear crisis, a debate is emerging in Japan’s business and political circles about how to do more with less electricity or just do less. After years of debate, Japanese policy makers have finally begun seriously to consider for the first time in six decades instituting daylight-saving time this summer, which would reduce energy demand in the early mornings and evenings. Japanese companies also are weighing reducing hours worked and wages paid at offices and factories. As a result, Tokyo households could face higher utility bills and blackouts during the hottest summer months, when air conditioners usually are cranked up to maximum power.
On the electricity side of the business this morning, a former energy executive is being quoted in the media that the cost of building new electrical generation is too high as compared to the cost of building a new coal plant, nuclear plant, solar farm, wind turbines or natural gas generated electrical generation which is higher than the current price of power. The price signals in the marketplace is that it’s not time to build as quoted from Jonathan Seigler, "With gas prices coming down," he said, "asset values for existing generation are trading well below replacement cost." Power prices tend to follow natural gas prices, and the boom in drilling has caused both markets to drop. Investors aren't willing to put money into new plants because they don't know when prices might rise again. These are the electricity prices that various types of power generators need to break even, according to Siegler's calculations: Solar photovoltaic, $236 per megawatt-hour, Nuclear, $117 per megawatt-hour, Wind: $115 per megawatt-hour, Coal: $63 per megawatt-hour, or $87 if you include the cost to mitigate carbon dioxide, Natural gas, $57 per megawatt-hour, or $67 including the cost to mitigate carbon dioxide. These prices as compared to the Texas wholesale power market, where electricity recently has been trading in a range of about $20 to $50 per megawatt-hour are putting the brakes on any new electrical generation for the time being.
The number of rigs drilling for natural gas in the United States rose by five this past week to 880, its first gain in four weeks, oil services firm Baker Hughes said on Friday. The rig count dropped in 12 of the previous 15 weeks, falling last week to its lowest level in 14 months. The count is still down 11 percent from its 2010 peak of 992 in mid-August, it’s highest since February 2009, when 1,018 rigs were drilling for gas. Horizontal rigs -- the type most often used to extract oil or gas from shale gained ground for the third straight week, climbing 9 to a record high 995. Analysts estimate that nearly two-thirds of horizontal rigs are drilling for natural gas, and these comprise part of the overall rig count. The rest are drilling for oil.