September 14, 2009

For Electricity Purchasing, The Best Advice is "Know Thyself"

For electric power purchasers, this has been a tumultuous year. Many energy professionals are wondering about prices next year. Many are praying they stay right where they are. Twelve months ago, electricity in the Northeast was trading from $68 per MWH up to almost $100 per MWh.



As you can see in the chart below, the producer price of electricity this week is much, much lower than last year: ranging from $29.00 to $35.00 per MWH. What's the best purchasing strategy?

When reviewing your energy strategy, consider both the bull and the bear sides of the market. Bullish factors to consider are a strong likelihood of a recovery, increased demand, hurricanes in the Gulf of Mexico, and unfortunately, the return of speculators. On the flip side, the economy could suddenly cool down curbing demand. Plus a new factor to consider is the growth of the unconventional natural gas producers who are eager to monetize new shale wells, and appear to be willing to increase natural gas production despite our current low prices.

As John Burt, President and CEO of Power Management notes: "Interestingly, there is a good case for riding the current market, and a good argument for hedging long term. It truly depends on your company's business objectives. Current variable prices on the market are $0.015 to $0.025 per KWH lower than fixed rates. The caveat here is that the fixed rates will go up; the big question is when. If you are like most customers, you may want to pay the lowest rate at all times. In that case, you would want to ride the variable market and take your chances.

"However, if your business objectives place a high priority on price certainty and guaranteed savings versus Ten-Year Historical Pricing; or you want to steer clear of volatility and have budget certainty well into the future, then fixing may be the best option for you."

Over the entrance of the Temple of the Oracles of Delphi, the phrase "Know Thyself " is inscribed. It is a very appropriate bit of advice for today's electricity purchasers. Over the past twelve months, we have seen the swing of the pendulum from record high prices to seven-year lows. No one can say with certainty that prices will equilibrate at any specific level over the next twelve months. As an energy purchaser looking out toward the future, it is important that you fully understand your company's business goals and risk tolerance. Before you enter the winter heating season, it is wise to sit down and map out an energy strategy plan. Once you "Know Thyself", we can help you frame the issues and provide innovative solutions.

Natural Gas Storage Grows by 69 BCF
Working gas in storage was 3,392 Bcf as of Friday, September 4, 2009, according to EIA estimates. This represents a net increase of 69 Bcf from the previous week. Stocks were 495 Bcf higher than last year at this time and 503 Bcf above the 5-year average of 2,889 Bcf. A little over 16% of US annual consumption is now in storage, 45-days before the heating season begins.

Natural Gas is Yo-Yoing
The natural gas markets over the past three days seem to be taking lessons from Duncan Yo Yos. Last Thursday, natural gas jumped from $2.74 per mmbtu to $3.30. The following day, it rose to $3.34 and shortly after lunchtime, it dived to $2.98 per mmbtu. This morning it flew up to $3.30 per mmbtu. What's going on? Hysterisis? Traders? Rumors of demand? All fundamentals are strong, so it can't be them. We will keep our eyes on it.

Natural Gas Market Watch-
 Intraday Prices Snapshot
Here are the intraday prices on the NYMEX electronic market today (Monday) at about 10:35 AM for the next six months($ per mmbtu, intraday prices):

Oct. $3.234 +0.274
Nov. $4.266 +0.255
Dec. $4.826 +0.226
Jan. $5.126 +0.199
Feb. $5.210 +0.200
Mar. $5.195 +0.199

Natural Gas Futures:
PMC 30-Day, 90-Day, 12-month Natural Gas Futures Chart

Crude Oil Watch
West Texas Cushing traded down $0.52 to $68.77 per bbl today at 9:08 AM.
NYMEX Crude front month future is down $0.28 to $69.01 per bbl at 10:59 AM today.
 OPEC Basket Data

Electricity Watch-
Cool weather ahead should keep electricity low over the next two weeks.
For more information view the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
 
Weather Trends- Summer Chill Ahead
The Northeastern US will have seasonal conditions; the Southeast will have unseasonably cool weather; and most of the west will be sizzling over the next week.
NOAA Forecast for Next Week
8-14 Day forecast
NOAA Forecast- 30-Days

Written and Researched by Martin Linskey; Energy Charts developed by Charles Myers.

Disclaimer: This information is provided for the use of our customers and potential customers. Power Management Company assumes no responsibility or liability for the accuracy or completeness of pricing or information in this document. Historical data was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. Views are subject to change without notice.