October 3, 2011 

How To Turn Economic Angst To Your Benefit

We tend to look at energy within the frame of reference of the energy markets where supply, demand and events shape trends. We have to remember that natural gas and electricity are commodities, which may help explain the unexpectedly negative price trends that we are seeing as we approach the heating season.

Almost all commodities are declining worldwide. (Livestock and gold were the major exceptions.) The anemic growth from the US is not helping fuel any fire for demand. China's stock market is declining today due to fears of slower growth, further chilling the chances for a recovery. Greece is on the verge of default, which will cause severe ripples through the European banking system. Saudi Arabia is cutting production and canceling shipments to reduce the glut of crude oil from the market. We are in the midst of a macroeconomic event. Now how can we benefit from it?

The silver-lining for all this cloudy news can be seen in the charts below. Energy prices are low and stable. That means that production costs will be manageable. In addition, there may be an opportunity to reduce risk in the future by locking in commodity prices. The long tail of commodity declines can result in net positive pricing for energy and raw materials in the future.

If this economy is beginning to look like what we exxperienced in 2008, then we need to revisit our strategy during the worst parts of the recession. At that time, we proposed a "Back to Basics" approach that encouraged companies to better manage how they purchased energy, and to apply a leaner approach to how facility managers used energy in their facilities. We feel that a BTU saved is a penny saved. Since operational cost sink to your bottom line, reducing energy expenditures will positively impact on your profit margins.

Does this mean conservation needs to be back in your lexicon? You bet. Energy efficiency also has a long tail that brings recurring benefits. When you utilize a lighting project, the cost benefits don't just occur in year one; they occur every year. As your management team looks for strategies for navigating the slowdown, keep energy in focus as a key area that can provide cost savings.

And don't forget how dynamic the US economy can be. The Institute for Supply Management reported that today's 51.6 rating was much higher than expected, indicating that despite the drumbeats of negativity, manufacturing and construction expanded in August. Consider this possibility. A leaner US economy drives a resurgence of the world economy. Don't laugh. Prior to 2007, nearly every global economic expansion since 1948 has been led by the US.

Natural Gas Futures Trend Downward

The buyer's market for natural gas remains in place. CME-NYMEX natural gas futures market intraday prices for October 3, 2011 at 8:07 AM.
(Prices are USD per mmbtu)

Nov. - $3.653 -$0.013
Dec. - $3.963 +$0.001
Jan. - $4.126 +$0.005
Feb. - $4.147 +$0.004
Mar. - $4.113 +$0.003
Apr. - $4.110 +$0.003

PMC 30-Day Natural Gas Futures Chart

Natural Gas Storage Soars by 111 BCF
Working gas in storage was 3,312 Bcf as of Friday, September 23, 2011, according to EIA estimates. This represents a net increase of 111 Bcf from the previous week. Stocks were 91 Bcf less than last year at this time and 5 Bcf above the 5-year average of 3,307 Bcf. 

Electricity Prices Are Flattening

The surprise cold-wave that we are experiencing has not caused electricity prices to rise. The trend line as you can see is still moving downward. We may not see it turn until November.

Crude Watch

A one year low of $79.19 was reached last Friday. Light Sweet Crude (WTI) is trading today on the CME/NYMEX market at $78.48, down $0.72 at 7:58 AM.

 OPEC Basket Data

Interesting Links and Resources

(Click on Links to View)

Indian Point's Future Rests on the Cuomo Fault Line
The future of the energy facility depends on Albany.

Commodities Record Biggest Slump Since 2008  (Bloomberg-Businessweek.com)
Macroeconomic events are driving prices down.

GENON Coal Plant in Alexandria To Close as Scheduled in 2012  (AlexandriaPatch.com)
Coal facility being phased out as part of a regional green strategy.

Ohio Natural Gas Results Put Utica Shale in Spotlight  (Insight Advisor, Gary Hunt)
Gary Hunt details a few of the drilling results in Ohio's Utica Shale.

"The Quest" by Daniel Yergin
In case you missed it, we are carrying-over the Amazon link from our last EnergyNews Flash. For energy professionals, a new Yergin book is always welcome.

Weather Trends
The 6-10 Day, 8-14 Day and the 30-Day National Weather Service Forecasts indicate warmer weather ahead from the Mississippi Valley to the Atlantic. It looks like a great October.