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Energy Commodity Procurement Outlook - July

 

Outlook

Now is the time to start securing longer term natural gas contracts of 24- to 36- months.  Time is running short to lock in low summer energy prices for both natural gas and electricity. Any worries about low storage levels going into this winter are waning with recent high injection reports.  Look to lock in winter gas now, before the real summer returns or a significant event happens.

 

Natural Gas Storage

Natural Gas Storage 7 14

Since our June report, natural gas storage levels received an injection boost of 430 BCF.  While storage levels are still lower than in years past, natural gas storage has reached 80% mark of the 5-year storage levels.  Good to see a strong recovery from this winter’s polar vortex.

Storage Table 7 14

Temperature Outlook

Weather Agencies are predicting below average temperatures for the next 6-10 days for the middle US with above-normal heat for the West and Southeast.  We are about half-way through summer and most regions have not experienced hotter than normal temperatures, as NOAA predicted.  The longer we go without prolonged high temperatures; the larger our natural gas supplies will be for next winter.  Also, our first hurricane, Arthur, had little impact on energy prices.

temperature 7 14

Energy Prices

Natural Gas

The NYMEX August gas futures continued to fall to the lowest levels this year.  After returning from the long holiday weekend, traders reacted to weather forecasts showing milder weather ahead indicating potential more strong storage injections.

In June, NYMEX natural gas prices set a new high 52-week high of $4.87.  The first week in July has seen prices drop to $4.19 / MMBTU; a 14% price drop.

NYMEX Settle 7 14

Electricity

Daily electric prices have seen the normal bump-up that summer brings.  However, in all deregulated markets, except the Northeast, future prices increase each calendar year of 2015, through 2018.  In the NY & PJM West, the future market prices see 2015 high and decline or are flat through 2018.

 

Bottom Line:  Take Advantage of Soft Market

Now is the time to start securing longer term natural gas contracts of 24- to 36-months.  Time is running short to lock in low summer energy prices for both natural gas and electricity.  Any worries about low storage levels going into this winter are waning with recent high injection reports.  Look to lock in winter gas now, before the real summer returns or a significant event happens.  Additionally, electricity pricing has stabilized further into the future; look to longer term contracts (24- to 36-months). 

A caution to our clients during energy supply contract negotiations: make sure transmission, capacity and ancillary charges are included in the price offerings, not just listed as pass-through charges, causing prices to appear lower.  Don’t be fooled; let AUM help.

 



Chicago Market Alert: ComEd Raising Electric Rates 21% June 1st.

 
Chicago Blue

Multifamily property owners have options to lock in stable rates and keep residents satisfied.

 

 

 

From the Chicago Tribune, May 7, 2014 –

Just as the Chicago area is getting ready for air conditioning weather, residents can expect to be jolted by higher electric bills. Starting June 1, Commonwealth Edison customers on average will see monthly bills jump 21%, to about $82 a month from about $69 a month.

Click Here to Read the Article

Multifamily property owners and managers on variable market rates or still on Com Ed Rates will see significant price spikes.  You can protect yourselves and your residents against dramatic fluctuations in energy commodity rates through expert energy procurement.

Act Now

Before the hot summer electric bill price spikes occur, contact AUM for a review your current contracts & discussions for alternatives to this increase. You have options – keep your residents satisfied.

Email Us Here!

AUM Services Overview

No-Obligation NOI Analysis

 

 



 


May Energy Commodity Procurement Opportunity Outlook

 

Outlook

Natural gas and electric prices continue to trade higher than last year.  High heating demand and increased industrial demand have contributed to higher pricing.  We expect the economy to continue improving, thus keeping industrial demand going strong.   We expect that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  For clients still exposed to utility default pricing or variable pricing for both electric and natural gas loads, we highly recommend reviewing your accounts and negotiating for fixed contracts.   Clients should seriously consider securing fixed contracts with longer positions in the market with 24- and 36- month terms.

Natural Gas Storage and Usage

The month of April is complete and the weather still feels like late October.  It feels like the weather will jump from winter to summer without much of a buffer.  Meteorologists are still determining if the past winter was the 2nd or 3rd coldest in recorded weather history. Does it really matter? 

Spring time usually has a calming effect on energy prices due to low demand for cooling or heating.  But this year heating demand is still higher than normal in many areas, even though the summer season is fast approaching.

The current concern is the upcoming summer season with natural gas storage at an 11 year low -  approximately 50% below the five-year average.  To refill the storage to sufficient levels, (the 3.4 Tcf range by November 2014), storage injections need to average 86 Bcf per week.  To note, the highest-recorded average weekly injection number was 80Bcf, in 2003.  The market has started to show its doubts by recent price hikes.  Producers will need to increase their storage injections during the summer months, increasing demand.  In addition, if the hot summer temperatures are above average, we will have another demand component to deal with as electric generators will require additional fuel, with excess demand causing upward price pressure. 

This past month we experienced the first storage injections of the season and the first monthly gain of 159 Bcf since the beginning of the heating season.  Natural gas in storage is currently at 981 Bcf, almost one Tcf below the five year average figure (50% below) and 790 Bcf below last year’s level (45% below).

natural Gas Storage Tables

Underground Storage5.14

 

Temperature Outlook

Weather forecasts are encouraging for the next 60 days.  Temperatures are expected to stay in normal ranges during the next two months with limited seasonal energy demands.  If this weather trend proves true and continues into July, we could see a boost in storage injections because production continues to set records.  A month ago, NOAA was predicting summer temperatures hotter than normal by at least 5% as they compare to the 30-year average and definitely hotter than last year.  Only time will tell.

Temps5.2014

 

Natural Gas Production and Pricing

Let’s revisit the facts stated previously:  The natural gas storage inventory is the lowest it has been over the last eleven years, check.  Current temperatures do not allow for a robust start of the shoulder season injections, check.  Industrial demand for natural gas is rising, check.  Several nuclear plants are retiring, check.  The upcoming summer weather cooling demand is projected to be higher than last year and we have not experienced an active hurricane season for some time, check.  Five for five in any other category would have been great but in this case it is of great concern.

Early this week the May 2014 natural gas contract settled at a price of $4.795 per MMBtu, a 5% increase from last month’s figure.  The May settlement was 16% higher than last year’s May settlement.  The NYMEX natural gas price curve depicted below includes a polynomial trend line curve which continues to show a sustained upward trend.  The weather will continue to be the driving factor behind future pricing inclusive of the additional factors listed above.

Nymex Settle5.14 resized 600

 

Despite a great reduction in the active US natural gas rig count (currently at 310 rigs), production is still running at 67 Bcf per day, a record amount.  Our actual rig count is down by 59% compared to the five year average of 758 but shale gas is definitely pulling us through with 15.7 Bcf daily coming just from the Marcellus shale.

A positive outcome of the higher natural gas prices is that they have helped reduce demand from power generators by 7% compared to last year.  If prices remain at current levels we do not see much switching coming from current coal burning plants.

Bottom Line

As of April 24th, 2014 the 12-month average forward pricing curve for natural gas is at $4.74 per MMBtu, compared to last month’s $4.55 per MMBtu price.  We do not have anything left in the current heating season, but next heating season of November through March, is at $4.75 per MMBtu. 

The effect of the much colder than average temperatures on market pricing is very obvious.  Many could say that now is too early to start thinking about next winter season especially after the mess we had to deal with over the last six months, but if the upcoming summer hits the forecasted above-average temperatures with a sprinkle of hurricanes and the current storage situation experiencing levels 50% below the five-year average, we could be heading towards the perfect energy pricing storm. 

Some of our clients did take advantage of the low pricing positions back in May/June of 2012 while several clients grabbed the pricing opportunity last fall and secured contracts in order to cover their loads through 2014 and 2015, but those low-priced contracts are coming up for renewal, and they will experience the current market uptrends.  Our projection that the natural gas market will stay in the $4.50 per MMBtu range remains, and we still do not expect to see pricing below the $4.00 mark any time soon.  Now is the time to start securing loads currently riding variable rates for the upcoming summer, but we are running out of time.  Short-term contracts of 12 months or less are currently very expensive, longer term contracts of 24- and 36- month terms offer better pricing blend.  The pricing negotiated now could be a bargain compared to what is coming. 

The natural gas market has entered a process of setting a long term bottom in prices, consumers spoiled by a few recent years of low energy pricing will have to eventually adjust their expectations and move forward with renewed pricing targets and risk assessments.

Natural gas and electric prices continue to trade higher than last year, as high heating demand and increased industrial demand have contributed to higher pricing.  We expect the economy to continue improving, keeping industrial demand going strong, while the 2013-14 heating season could have established the bottom-price thresholds for the remainder of 2014 and beyond. 

We expect that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  For clients still exposed to utility default pricing or variable pricing for both electric and natural gas loads, we highly recommend reviewing your accounts and negotiating for fixed contracts.  Capacity charges for next winter are already setting records in the Northeast.  Clients should seriously consider securing fixed contracts with longer positions in the market with 24- and 36- month terms, as  commodity and capacity pricing tend to stabilize into the future. 

As a caution, during energy supply contract negotiations, please make sure capacity charges are included in the price offerings and they are not pass-through.  They can be devastating for your budget if not secured.  The main concern right now is natural gas storage inventories for next winter.  We will know this possibly by the middle of the summer; I would not recommend waiting that long.

Boston Delays Benchmarking and Disclosure Reporting

 

describe the imageToday, the Boston City Council voted  to approve the bill filed by Councilor Frank Baker to delay the implementation of the energy reporting and disclosure mandate in Boston for one year. The lone vote against the measure was Councilor Matt O’Malley (D-Jamaica Plain).

Click here to read the delay amendment.

In 2013 the City of Boston approved a new mandate requiring owners with buildings over 35,000 gross square feet to report and publicly disclose energy and water use. The law was to be phased in over three years starting this year.

Nine cities and two states have adopted energy benchmarking and disclosure laws. While all of them require building owners to track their properties' energy use, the laws vary regarding the size and type of buildings they affect; whether the energy use data must be disclosed publicly, or just to potential tenants or buyers; and other factors. 

Major unresolved issues have led to delays in implementation in other cities.  Seattle has revised its originally planned program and has twice postponed the date by which reporting is to occur for residential buildings.   Washington DC has had several years of delays and only recently issued rules nearly five years after the law was enacted.  

AUM will continue to keep multifamily property owners affected by this mandate and otherbenchmarking and disclosureinitiatives as they occur.

Thinking About Conservation this Earth Day

 

Earthday2014Today marks the 44th celebration of Earth Day. This global recognition of the importance of environmental consciousness started in San Francisco in 1969, when environmental activist John McConnell proposed a day where people would raise awareness for ways to preserve Earth's natural resources and protect its species, as well as celebrate the beauty of the planet.

Today, Earth Day is observed in 192 countries. Whether it's a massive public rally, a private event, or an individual contribution, there are many ways to participate. Efforts can range from organizing environmental fundraisers, to planting a tree, to taking care to use less water and paying extra attention to how many lights are left on.

Conserving energy is an important way to reduce strain on the environment and bring down expenses. Applying simple practices in your property's lighting, water, and HVAC systems can go a long way toward shrinking your carbon footprint and increasing your NOI.

 

Lighting

Embrace natural light. During the day, think of the sun as your primary light source, and rearrange space take advantage of its rays. Open the shades or blinds and let the light pour in instead of automatically flipping on the overhead switch. Try to arrange your desk so that it's lit by natural light, so you won't have to use a desk lamp or overhead lighting.

Replace your incandescent light bulbs. These old-fashioned light bulbs burn off most of their energy as heat, rather than producing light. Replace them with compact fluorescent bulbs or LED bulbs, both of which are much more energy efficient.  

Minimize your use of outside lights. A lot of people don't think about how much energy is being used by porch lights or path lights that stay on all night long.

Water

A recent study showed that 99% of business managers surveyed ranked water conservation as a “top five” priority over the next decade. The first step in understanding where you can conserve water usage is to conduct a water audit to find optimal water use. Then, monitor your utility bills to gauge monthly consumption.

Here are some useful tips to help conserve water at your properties:

  • Be sure your irrigation system is watering only the areas intended, with no water running onto walks, streets or down the gutter.

  • Marry the weather with your landscape water use. Water use should decrease during rainy periods and increase during hot, dry periods.

  • Inspect your landscape irrigation system regularly for leaks or broken sprinkler heads and adjust pressures to specification.

Heating and Air Conditioning

Clean and repair heating, venting, and air conditioning (HVAC) system on a routine basis. A clean and working HVAC system will help largely reduce your energy bills.Clean or replace the office's HVAC air filters, and clean all the evaporators, condensers, coils, and heat exchanger surfaces at least once per month. In some cases, you may need to hire an HVAC contractor to safely and effectively perform these tasks for you.

Energy Commodity Purchasing Outlook - February 2014

 

Outlook

Currently, the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  For property owners still exposed to default pricing or variable pricing, we highly recommend reviewing your accounts now, and preparing for negotiations during possible upcoming pricing breaks. Daily market pricing for the northeast markets, especially New England, continues to set daily records.  If all goes as predicted over the next several weeks, expect some pricing decline, with buying opportunities in late February or early March.  You should consider longer positions in the market, with 18-, 24- or even 36-month terms and delayed contract starts.  Commodity and capacity pricing tend to stabilize further into the future.

 

Natural Gas Storage

Wow, what a difference a month makes.  Many of us survived a very cold December and actually looked forward to a snow-covered Christmas Holiday.  Unfortunately that was not the end of the story.  January came in with a vengeance, registering some of the lowest temperatures many of us have seen in a very long time.  On Monday, January 6th, 2014, below-freezing temperatures registered in all fifty states,  including Hawaii. 

Since our last report we continued to experience record high withdrawals from the national natural gas storage.  Last week the Energy Information Administration (EIA) reported a natural gas storage withdrawal of -230 Bcf, a figure within the analysts’ expectations but well above historic figures.  Natural gas in storage is currently at 2.193 Tcf, 437 Bcf below the five-year average figure and 637 Bcf below last year’s level.  In one month we experienced a 28.6% drop in storage levels while the five-year average called for a drop of only 22%.  Punxsutawney Phil did not have good news for us either.  On February 2nd he predicted six more weeks of winter; a brutally cold and long winter so far.

NYMEX Gas Settle resized 600

Natural gas storage inventories are now officially below the five-year historical range.  We expect the record high withdrawals to continue as long as the current low temperatures continue.

12.13 Hubspot storage graph

 

Temperature Outlook

Near-term forecasts are calling for temperatures to remain in the severe cold ranges through at least the middle of February.  If we do not get any reprieve from these extreme low temperatures by the end of February we will experience further natural gas pricing spikes, which in turn will push for electric pricing spikes right before the upcoming summer season.

Based on NOAA’s latest extended forecast, we should experience above-normal temperatures across the southern part of the US for the next three months.  We can only hope that some of this warmth will find its way up north pressuring pricing for both electric and natural gas lower.

12.13 Hubspot  Winter temps

 Courtesy:  EarthSat

Natural Gas Production & Pricing

Last week, the February 2014 natural gas contract settled at a price of $5.557 per MMBtu, a substantial spike in the pricing trend.  The latest monthly settlement was 26% higher than January’s settlement and the highest since January of 2010.  The NYMEX Natural Gas price settle curve depicted below includes a polynomial trend line (marked in red) which shows a sustained upward curve.  The weather is currently the major factor for the recent price spikes; temperatures through the middle of March could set pricing trends for 2014 and 2015.

12.13 Hubspot  Gas Settle

 

Our national dry natural gas production continues to exceed last year’s levels but it did drop to 65 Bcf/day this month due to the extreme temperatures and well-head freeze offs.  Once the temperatures settle back to normal levels the output is expected to climb back up to record high territory above 67 Bcf/day.

Even though we had very high increases in the price of natural gas, the market did not experience the expected gas-to-coal switching for power generation because the generators needed both types of fuel due to the very low temperatures.  If the current elevated natural gas pricing continues we will eventually see more and more generators ramp up electric generation from lower-cost coal-fired plants.

 

Bottom Line

As of January 30th, 2014 the 12-month average forward pricing curve for natural gas is at $4.44 per MMBtu, compared to last month’s $4.26 per MMBtu price.  In addition, the three-month pricing curve for the remaining heating season, February 2014 through March 2014, jumped to $5.01 compared to last month’s $4.37 per MMBtu, illustrating the obvious effect of the much colder-than-average temperatures on market pricing.

With each passing month it becomes more clear that the market possibly experienced its low point  in May/June 2012.  Several clients took advantage of these positions, but their low-priced contracts are soon up for renewal and they too will experience the market uptrends. However, we did have several clients grab the opportunity last fall tosecure contracts to cover their loads through 2014, with many through 2015. 

Current projections estimate the natural gas market returning to $4.00- $4.50 per MMBtu, but we do not expect to see pricing below the $4.00 mark any time soon.  If the weather gives us a break, we could see a buying opportunity in the next few weeks.

Natural gas and electric prices are continuing to trade higher than last year.  Natural gas production still remains at high levels even though the natural gas rig count has been considerably reduced over the last year.  Advances within the shale gas industry have increased production levels to record highs.  Current high heating demand and increased industrial demand have contributed to higher pricing.  We expect the economy to continue to improve, thus keeping industrial demand strong while the remainder of the heating season could establish the bottom price thresholds for the remainder of 2014.

Market Alert - New York City Local Law 87 Compliance Now Required

 

NYC LOCAL LAW 87 – Energy Auditing &NYC Seal Retro-Commissioning

In December of 2009 New York City Mayor Bloomberg and the City Council signed Local Law 87 (LL87) under the City’s Greener, Greater Buildings Plan.  The law requires buildings with gross square footage of 50,000 sq.ft. or more and two or more buildings on the same tax lot that together add up to 100,000 sq.ft. to perform an energy audit and conduct retro-commissioning of the buildings’ base systems such as the envelope, HVAC, controls and lighting.

Under LL87, property owners are required to file an energy audit report during the calendar year of their assignment and every ten years thereafter.  The completion assignment schedule  is determined based on the last digit of the tax block number assigned to every property in the City.  The first rounds of assessments were due for compliance in 2013.

 NYCLL87

The energy audit must be an ASHRAE level II audit following the strict guidelines established by the Association.  It shall be a formal technical assessment of the property’s base systems such as the envelope, mechanical, plumbing, lighting, and control systems resulting in a detailed findings report enumerating energy and water conservation measures with upfront costs and resulting savings.

Retro-commissioning shall apply the commissioning process to existing buildings by identifying underperforming building systems and controls and provide correction solutions to return them to their original and intended performing state.  In some cases retro-commissioning performed by qualified professionals can identify and provide solutions for issues that were part of the original design and/or construction.

Property owners and managers that fail to comply with the due dates associated with LL87 shall face fines that accumulate over every non-compliant year. Failure to submit an Energy Efficiency Report will be regarded as a Class 2 violation, which may result in a fine of $3,000 for the first year and, will compound with each additional non-compliant year until the Energy Efficiency Report is submitted. Furthermore, the Department of Buildings will not accept a report if outstanding fines have not been paid.

Contact AUM today for further information and assistance with LL87 and other mandates currently in force across the US.  Our experts will evaluate your compliance requirements and schedule the site visit by our Certified Professionals for the completion of the mandate requirements.

Click here to understand all LL87 Compliance Requirements

Energy Commodity Outlook - December, 2013

 

Outlook

We continue to believe that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  For clients still having exposure to both electric and natural gas market pricing for the upcoming winter months we highly recommend covering their positions for the short term.  If all goes well with temperatures, natural gas storage inventories and production, we could see buying opportunities in late February/early March.  Clients should highly consider longer positions in the market with 18-, 24- or even 36-month terms.

 

Natural Gas Storage

Given the current extreme weather gripping most of the Nation, many in our industry are wondering if the high natural gas inventories in storage and the record high dry gas production numbers of the past several weeks offer enough support for the upcoming winter heating demand.  A reminder of the upcoming winter season was given to us with the arctic blast engulfing the Eastern two-thirds of the country and the foul weather spoiling travel plans for many Americans.  In Chicagoland we are currently experiencing 20-degree daytime temperatures, usual weather for us, but not until late January.  Since our last report we have experienced the first withdrawals from the national natural gas storage. 

Last week the Energy Information Administration (EIA) reported a low natural gas storage withdrawal of -13 Bcf; a figure within the analyst’s expectations, yet pricing went up.  Natural gas in storage is currently at 3.776 Tcf, 17 Bcf above the five year average figure and only 100 Bcf below last year’s record setting levels.

12.13 Hubspot storage graph

Temperature Outlook

The National Oceanic & Atmospheric Administration, commonly known as NOAA has issued preliminary winter temperature forecasts calling for above normal temperatures for New York, New England and Texas while the Midwest and Midatlantic should expect normal temperatures.  Normal temperatures sound like a favorable forecast but we do need to keep in mind that the past two winters registered above normal temperatures.

12.13 Hubspot  Winter temps

 

Natural Gas Production & Pricing

Our national dry natural gas production continues to exceed last year’s levels; we continue on the year- over- year higher production of 2.5 Bcf per day.  It appears that the magic price for the coal to natural gas switch made by many electric generators is still at the $4 per MMBtu mark; recent market pricing approaching this threshold will test this theory.  In addition coal prices are still at their lowest point over the last three years so the incentive for electric generators to switch to an alternate fuel such as natural gas has diminished.

Last week the December 2013 natural gas contract settled at a price of $3.818 per MMBtu, an uptrend compared to the last four months.  The NYMEX Natural Gas price settle curve depicted below includes a polynomial trend line (red line) which shows a sustained upward pricing curve.  Despite the above forecast storage inventory reports over the last couple of weeks, the NYMEX forward natural gas futures contracts have not reacted with substantial pricing downtrends.  On Cyber Monday, the January gas futures contract settled at $3.988 per MMBtu, approaching the $4.00 psychological mark.  For the market to experience a substantial drop with a sustainable duration will require December and possibly January to experience above normal temperatures, for production levels to remain at current record highs and industrial load to remain as is without any major capacity increases.

12.13 Hubspot  Gas Settle

 

Bottom Line

Currently the 12-month average forward pricing curve for natural gas is at $3.995 per MMBtu, compared to last month’s $3.697 per MMBtu price.  In addition the four month pricing curve for the upcoming heating season, December 2013 through March 2014, receded a little to $3.93 from last month’s $3.64 per MMBtu.  The effect of the upcoming cold weather on the market pricing is obvious.  As stated last month the market appears to be bouncing off a bottom threshold and several buyers have taken advantage of recent lower pricing in order to cover their positions for the upcoming winter loads.  Several energy executives continue to project that the natural gas market will continue to fluctuate in the $3.50 to $4.00 per MMBtu range for the first part of 2014.

The fact still remains that natural gas and electric prices continue to trade higher than a year ago.  Natural gas production is at an all-time high even though the natural gas rig count has reduced by 13% compared to last year.  Advances within the shale gas industry have increased production levels to record highs. We continue to have minimal demand and the record high production levels are keeping energy pricing in check.  Both the natural gas and electric pricing are currently trading near their second-lowest levels in the last decade. Hurricane activity was non-existent this season but the winter heating season of 2013-2014 is just starting.

Energy Commodity Outlook - October, 2013

 

Outlook

We continue to believe that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  We are currently experiencing a buying opportunity, clients should seriously consider covering their winter electric and natural gas exposure if they have not done so already.  If all goes well with temperatures, natural gas injections and the hurricane season, we could see buying opportunities last through October.  Clients should consider longer positions in the market compared to shorter 12- or 18-month deals.  We are seeing competitive pricing for 24- and even 36- month terms due to the lower capacity charges.

Natural Gas Storage

It’s Autumn, and shoulder season has arrived. But higher than normal temperatures have remained throughout the country.  Last week temperatures in Chicagoland reached as high as 85 degrees, in October!!  But no complaints here considering that the days are getting shorter, the nights are getting longer and the temperatures will soon follow their natural downward path.  On September 30, the Energy Information Administration (EIA) reported a natural gas storage injection of 101 Bcf; a figure above the analysts’ expectations yet pricing was not affected much.  Natural gas in storage is currently at 3.487 Tcf, 49 Bcf above the five-year average figure and only 155 Bcf below last year’s record setting levels.

Natural Gas Storage: Storage Buildup
Continues on Strong Pace During September

October Storage Tables resized 600

 

Natural gas storage inventories are still lower than last year’s levels, but the variance continues to shrink at a faster pace.  Injections over the last couple of weeks have surpassed expert forecasts.  Today’s injection report of 101 Bcf for the week ending 9-27-2013 was much higher than last year’s injection of only 77 Bcf.  The traditional storage injection season runs through October 31st so we have at least four more storage injections forecasted to continue strong; expectations still stand for the natural gas market to possibly loosen up a little more before the onset of the heating season.

October Storage resized 600

Temperature Outlook

Weather forecasts for October and November are indicating that the majority of the country will experience normal to above normal temperature patterns.  We have also learned that the scheduled nuclear plant maintenance shut downs for this fall are substantially lower than the rolling average.  These two factors could potentially help the market by reducing natural gas usage for both electric generation and heating loads allowing natural gas storage inventories to build to near or above record levels before winter temperatures set in.  Last week we had our first Tropical Storm, named “Karen”, which luckily did not become a hurricane before hitting the natural gas producing area of the Gulf.  We are not done yet with the Hurricane season.

 

Natural Gas Production and Pricing

 

Our national dry natural gas production continues to exceed last year’s levels; we are currently at 2.5% above last year.  It appears that the magic price for the coal to natural gas switch is the $4 per MMBtu mark; sustained pricing above the mark means that power plants will continue to burn coal while sustained pricing below that mark is a good incentive for generators to fire up their natural gas units.  Currently coal prices are at their lowest point over the last three years so the incentive for electric generators to switch to an alternate fuel such as natural gas has diminished.

There have been several articles and reports stating that tight natural gas supply balance in the Northeast and especially in the New England area are driving forward-basis pricing much higher than the rest of the country.  Winter forward prices at the Algonquin Gas Transmission city-gates, a highly constrained and often volatile New England hub, are averaging $8 per MMBtu year to date, a 31% increase compared to last winter.  Even without any clear forecast for the upcoming winter’s temperatures the pricing for basis (capacity coverage) is heading higher and higher every day.  Last November spot prices at Algonquin city-gates jumped by $4.10 per MMBtu within a week’s period.  This year it could get even more volatile.

On Friday, September 27th the October 2013 natural gas contract settled at a price of $3.498 per MMBtu, a slight improvement over the September settle.  The NYMEX Natural Gas price settle curve depicted below includes a polynomial trend line (red line) which shows a sustained upward pricing curve.  Despite the above forecast storage inventory reports over the last couple of weeks, the NYMEX forward natural gas futures contracts have not reacted with substantial pricing downtrends.  It appears that natural gas pricing is bouncing off a bottom threshold. Any pricing downtrend will be small and brief but an uptrend could be large and much longer.

October Gas Settle resized 600

 

Bottom Line

Currently the 12-month average forward pricing curve for natural gas is at $3.789 per MMBTU, compared to last month’s $3.873 per MMBTU price.  In addition the five month pricing curve for the upcoming heating season, November 2013 through March 2014, receded a little to $3.77 from last month’s $3.885 per MMBTU.  For all practical purposes, the heating season is around the corner.  As stated last month the market appears to be bouncing off a bottom threshold and several buyers have taken advantage of the recent lower pricing in order to cover their positions for the upcoming winter loads.  Several energy executives project that the natural gas market will continue to fluctuate in the $3.5 to $4 per MMBTU range for the rest of the year.

The fact remains that natural gas and electric prices continue to trade higher than a year ago, but they are still close to the lowest levels of the last ten years set back in May of 2012.  The recent development of shale gas production has provided some protection against extreme pricing spikes usually accompanying the hurricane season, but a large region of our country, the Northeast, inclusive of the NYC area and New England, has remained very volatile due to high dependence on natural gas for electric generation and capacity constraints.  A coastal storm such as Sandy or a sustained winter storm with snow accumulation and Arctic temperatures could create major disruptions and substantial price spikes particularly for these markets.

We continue to believe that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  Clients should seriously consider covering their winter electric and natural gas exposure if they have not done so already.  If all goes well with temperatures, natural gas injections and the hurricane season, we could see buying opportunities last through October.  Clients should consider longer positions in the market compared to shorter 12- or 18-month deals.  We are seeing competitive pricing for 24- and even 36- month terms due to the lower capacity charges.

California SB 750 Fails to Pass Committee

 

describe the image

 

Bill Will NOT be Revisited During 2013 Legislative Session

 

California Senate Bill 750 will not be proceeding during the 2013 Legislative Session.  AUM, through our lobbying group the UCC, has confirmed that the bill’s author, Senator Lois Wolk, will not be pursuing passage in 2013.  The bill did not pass the Senate Water, Parks and Wildlife Committee on August 13th due in part to the UCC’s lobbying efforts pointing out several key issues that needed to be resolved.  Prior to the start of the 2014 session, all parties involved will be working together to craft a bill that will equitably satisfy the overall goal of the bill to conserve water.

While the bill is not moving forward at this time, the progress made over the past year makes it clear that much can be accomplished when all parties, on both sides, work in conjunction.  The UCC, along with several other groups including but not limited to the CAA and UMCA are looking forward to making great progress in the coming months.  Look for updates in 2014 when the California Legislature reconvenes.

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