Bill read and passed in Committee with significant changes – current RUBS billing properties excluded, other amendments being considered.
As communicated in April, AUM was spearheading efforts to protect California Multifamily property owner interests as they relate to CA Senate Bill 750 (See California Market Alert). SB750 would require all structures (with a few exceptions) built after January 1st, 2014 to be individually metered by the water providers, or have submeters installed to measure water use. Under SB750, any charges to residents for water would be determined by the use of a submeter or included in their rent. Any Ratio Utility Billing System (RUBS) would be prohibited.
Specific Issues with CASB 750
We spoke to the staff attorney of the Republican Caucus for the CA Judiciary Committee, and laid out specifics on the issues with the Bill:
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Under the draft of CA SB750, fees related to resident utility billing programs would be prohibited from being passed on, preventing recovery of costs to manage the program.
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Onerous submeter testing and certification requirements would not be changed. Aside from the cost of submeter installation ($150-$250 per unit), the current certification process, as administered by the County Department of Measurement Standards (better known as Weights and Measures – DWM), rejects almost 20% of the tested submeters. Sending a new meter to pass the test results in an additional cost of $100 per submeter.
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Unreasonable and unnecessary regulations place criminal liability on anyone who submits a submeter which fails its certification test, even though it has not been installed in an apartment.
So let’s take an example: A property owner has 1,000 apartment units in CA, all previously built. To install submeters in all 1,000 units (per CASB750) would cost the property owner at least $250,000. But 20% of the submeters would need to be retested, (as the “benches” used to test the meters are different throughout the state thus not all test to the same level coupled with CA using NIST standards and meter manufacturers building meters to meet AWWA standards) adding another $20,000 to the cost. Total cost to retrofit the units: $270,000.
Although a bill written to streamline the submeter certification process passed both houses in the CA state legislature last year (CASB 744), it was vetoed by Governor Jerry Brown. That veto, combined with the passage of CA SB 750 will create enormous cost and timing pressures on submeter installation.
AUM Championing Amendments to the Bill
First Noteworthy Amendment - As expected, SB 750 passed the California Senate Judiciary Committee on Tuesday afternoon. The official vote was 5-1, with one “no” vote.
Prior to the committee hearing, our effort to amend the bill on one topic was successful – it will not prohibit RUBS billing at properties already utilizing such a program and will not fall under the onerous proposed restrictions of CA SB 750.
Second Noteworthy Amendment - During the hearing, it was acknowledged by Senator Wolk (bill author) that prohibiting the recovery of administration fees must be addressed. She cited San Diego Municipal Code 6 Article 7, Chapter 6, which allows for reasonable administration and late fees, as a possible model for future amendments.
We will continue working diligently to assist Senator Wolk with amendments to the bill that protect our mutual interest and result in responsible legislation to drive utility conservation in California. The next stop for this bill (amended or not) will be the full California Senate floor before May 31st.
We are working diligently to ensure we can get the bill amended (favorably) prior to heading back to the Senate floor.
Natural Gas Storage and Usage
Weather has continued to be the center of attention for the energy markets. April continued on March’s path with well below- average temperatures with substantial snow in the upper Midwest and the Rockies. On Thursday, April 25th the Energy Information Administration (EIA) reported a natural gas injection into natural gas storage of only 30 Bcf, in line with analysts’ expectations but well below last year’s injection and the 5-year average. As a result natural gas in storage is currently at 1.734 Tcf, 96 Bcf below the 5-year average figure and 807 Bcf below last year’s level.
A prolonged winter has caused an unexpected reduction in natural gas storage levels. But weather forecasters are noting that the shoulder season is finally here. Over the next several weeks demand for energy should decrease substantially, and heating loads should slowly be replaced with cooling loads. For only the second time in nine weeks, energy prices fell this past week. We will get a short respite from sharp price increases, but we cannot conclude that this downward price trend will continue. With an onset delay of the storage injection season and two below-average injections since, we have officially crossed below the 5-year average storage trend; a level not experienced since fall of 2011.
Temperature Outlook
According to the weather “experts” we have entered the period referred to as shoulder season. The wild card for natural gas prices, and in turn electric prices, is the upcoming summer demand. If the shoulder season extends well into June for the majority of the country with mild temperatures, we could see storage levels re-building above the 5-year average trend, allowing for the perception of a surplus with downward price pressure. If the shoulder season is short with warm summer weather demand knocking on our door early, we could see immediate price response with even higher levels. I am not adding any weather forecast graphs this month because they tended to be a little inaccurate over the last three months. Weather forecast experts have recently switched their prediction for May to “normal temperatures” instead of prior predictions for “above-normal temperatures”.
Natural Gas Production and Pricing
There is some good news. Our national dry natural gas production is approximately 1.5% above last year’s levels. In addition, current price spikes for natural gas commodity have reduced the switch of coal electric generation to natural gas generation and possibly have allowed several coal plants to recover some of their lost generation from the earlier fuel switches. We will also see several idle nuclear plants coming back on line for the upcoming summer season, so the demand for natural gas will reduce further. All these factors, with a little help from Mother Nature in terms of normal temperatures, should allow the natural gas storage to replenish and reduce the fears and speculations of a tightening supply forecast.
On Friday, April 26th, the May 2013 natural gas contract settled at a price of $4.152 per MMBtu, the first time it broke the $4.00 psychological resistance since August 2011. In the NYMEX Natural Gas settle curve depicted below we added a polynomial trend line (red line) to show that we have entered a sustained upward pricing curve which we are hoping flattens out by the end of the shoulder season.
Bottom Line
Natural gas prices have inched upward for the last nine weeks, with the exception of a couple of minor dips. Currently the 12-month pricing curve for natural gas is at $4.324 per MMBTU. There is always hope for recovery, and it appears we have entered the shoulder season with mild spring temperatures, allowing the natural gas market a breather hopefully for the next couple of months.
The fact is that natural gas and electric prices are trading 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 spring thaw might be the right time to secure natural gas and electric pricing contracts for the foreseeable future. Clients should be considering longer positions in the market compared to shorter 12- or 18-month deals. In several cases we are seeing better pricing moving out to 24- and even 36- month offerings due to the lower capacity charges, market dependent.
AUM Discusses Carried Interest with Congressional Leaders during NAA Capitol Conference
In conjunction with National Apartment Association President Doug Culkin, AUM coordinated a meeting with Congressman Aaron Schock (R- IL) and Congressman Dave Camp (R-MI), Chairman of the House Ways and Means Committee, to discuss Multifamily interests and concerns regarding carried interest.
The Obama Administration brought the issue to the forefront on Super Bowl Sunday when the
President noted that more tax revenue would be needed in order to reduce the U.S. deficit. Obama stated that he would seek to end deductions that are not available to all Americans, singling out Carried Interest, which refers to the tax rate paid by many private equity managers, venture capital, and real estate partnerships. Obama Questions 'Carried Interest' Tax Break. Carried Interest is of particular importance to Multifamily. If Multifamily developers are taxed at 39.6% instead of 15%, future investments in Multifamily projects are put at risk, leaving fewer buildings being developed.
As with most legislative issues being discussed today, passing the Obama administration initiatives is proving difficult. While Obama and the Democrats in Congress would like to bring Carried Interest to the forefront, it is not being considered by the Republican majority in the House of Representatives. That being said, it is important to note that the Carried Interest discussion may take a different turn with the 2014 Congressional races. Expect the Democratic minority to make a big push to gain 15 of the 50 seats available during the 2014 elections. Gaining 15 seats will provide the Obama Administration with a majority in both the House of Representatives and the Senate, allowing them to make changes to Carried Interest that would be detrimental to Multifamily development.
Freddie Mac Exploring Multifamily Benchmarking
While in Washington, DC, we were invited by Freddie Mac to discuss multifamily energy benchmarking. Freddie Mac was chartered by Congress in 1970 with a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership and affordable rental housing, and its mission is to provide liquidity, stability and affordability to the U.S. housing market.
Freddie Mac, like Fannie Mae before it, is interested in using energy usage and consumption data as part of its finance underwriting process. Seeking a proper Multifamily energy efficiency benchmark platform that is not necessarily tied to EPA Portfolio Manager, Freddie was interested in learning more about AUM Score, the ONLY energy efficiency benchmarking tool designed specifically for Multifamily.
So, Fannie Mae and Freddie Mac appear to be seeking ways to benchmark energy efficiency in Multifamily. With these developments, as well as various benchmarking and disclosure initiatives enacted throughout the country, it appears that energy benchmarking is becoming an accepted business practice, both operationally and financially. As the premier energy management partner to multifamily, it is our goal not only to inform our clients, but to work on their behalf to ensure compliance and maximum energy efficiency.
California Senate Bill 750 Update
As communicated in March through this blog and as part of a California Market Alert, Senate Bill 750 was introduced in late February by Senator Lois Wolk of the CA Third Senate District. SB750, coauthored by Assembly Member Paul Fong of the CA 28th District, would require all structures (with a few exceptions) built after January 1st, 2014 to be individually metered by the water providers, or have Submeters installed to measure water use. Under SB750, any charges to residents for water would be determined by the use of a Submeter or included in their rent. Any Ratio Utility Billing System (RUBS) would be prohibited.
While in Washington, I took advantage of our visits on Capitol Hill to meet with Congressmen Kevin McCarthy’s (R-CA) office. Congressmen McCarthy is the current House Majority Whip, and has been a proponent of Multifamily’s interests. My meeting was specific to SB750 to determine the best course of action to protect Multifamily’s interests in California.
McCarthy’s staff directed us to Senator Jean Fuller (CA 18th Senate District), Vice Chair of the Energy, Utilities, and Communications Committee. We spoke to her staff and plan on speaking with the staff attorney of the Republican Caucus for the CA Judiciary Committee, where the bill currently resides A hearing date has not been set.
AUM is leading the charge to protect your interests with respect to this bill. We will continue to work with our lobbyist in California and keep you informed of any critical developments.
Since the AUM March Energy Outlook, the weather over much of the U. S. has posed challenges for the natural gas market due to colder than expected temperatures and increased demand for heat. On Thursday, March 28th the Energy Information Administration reported a natural gas withdrawal from natural gas storage of 95 Bcf, well above what analysts expected. As a result natural gas in storage is currently at 1.781 Tcf, only 61 Bcf above the five-year average figure.
Unusually Cold Temperatures Driving Natural Gas Demand
Below-normal temperatures throughout the Northeast and Midwest over the last 30 days have created above-normal demand for natural gas resources. Under normal circumstances, we would have entered a storage injection period, but experts expect additional withdrawals near-term. With this withdrawal trend in place, natural gas volume in storage will, for the first time since fall of 2011, cross the five-year average trend as depicted by the blue line below. Prior predictions of natural gas storage volumes exceeding the five-year average were proven wrong, validating the large influence of weather fluctuations on market pricing.
Temperature Outlook
After the extended cold spell gripping the heating load regions of the Continental US over several weeks, temperatures are forecasted to remain fairly cold through the end of this week. Current heating demand wil place price pressure on the daily cash market and front-month futures contracts. Weather forecasters are predicting warmer temperatures next week, with the warming trend to continue through April and May. There is, however, a disclaimer on these weather forecasts because over the last couple of months expert temperature predictions have left us in the “cold”.
Natural Gas Production and Pricing
Current storage inventory is well below 2TCF and may be below the five- year average by the end of the withdrawal season. Additional withdrawals are expected near-term, delaying the injection season by almost a month. Additionally, there may be a demand increase due to added natural gas-generated electricity and economic growth. All these factors are currently working against market pricing. However, increased shale natural gas production and a possible easing of natural gas usage for electric generation may alleviate updward price pressure.
On Tuesday, March 26th the April natural gas contract settled at a price of $3.976 per MMBtu, the highest settle since August of 2011.
Bottom Line
Natural gas prices have inched upward for five straight weeks. Last week, the 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose by 1.6%, and since the beginning of March, natural gas prices have risen by 11% while peak power prices have risen by 6%.
Weather is to be blamed for this spike. March 2013 was approximately 25% colder than expected for most areas east of Mississippi. But, there is hope for recovery. This past week’s price spike was the smallest over the last four weeks, which could mean the rally may be ending with the beginning of spring temperatures. Even with the unexpected high withdrawal posted last week, the market dropped substantially last Thursday.
Natural gas and electric prices are trading higher than a year ago, but they are still very near to the lowest levels of the last ten years. The spring thaw may be the right time to secure natural gas and electric pricing contracts for the foreseeable future.
California SB750 will require Multifamily individual water metering and other stipulated requirements.
Overview of SB750
In late February, California Senate Bill 750 was introduced by Senator Lois Wolk of the CA Third Senate District. SB750, coauthored by Assembly Member Paul Fong of the CA 28th District, would require all structures (with a few exceptions) built after January 1st, 2014 to be individually metered by the water providers, or have Submeters installed. to measure water use. Under SB750, any charges to residents for water would be determined by the use of a Submeter or included in their rent. Any Ratio Utility Billing System (RUBS) would be prohibited.
SB750 is similar to the CA AB19, introduced by Assembly Member Fong in late 2010. AB died in committee as it had several issues, including but not limited to, a prohibition of RUBS and administration fees as well as a requirement to have the water district determine if they would direct meter the apartments.
SB750 was just introduced on February 22nd and has not been acted upon in committee.
Additional Lease Requirements
If enacted in its current form, SB750 would require additions to the current standard CA lease. Those changes include, but are not limited to:
- Notation of the average bill for water service;
- Last Submeter testing date for the unit under lease consideration;
- Current amount of any recurring fixed charges;
- The method of how charges are determined;
- The location of the Submeter and directions on how to read it.
Meter Reads Requirements
SB750 stipulates requirements for meter reading and billing cycles of the Utility. Submeter reads would need to be made within 3 days of the same point in each billing cycle, and within 3 days of beginning or ending of tenancy (i.e. move-in and move-out). Estimated reads can be used, but only for a maximum of three months. Estimated usage is 75% of usage stated in the lease.
Billing Requirements
The current version of SB750 has many requirements for billing cycles and specific requirements for what must be included on the bill. Bills must include, but are not limited to:
- Usage, rates and charges for volumetric charges;
- Amount of recurring fixed charges to the property;
- Total property water consumption;
- Percentage of water consumption by the tenant.
If billed by a party other than the water purveyor, the billing cycle must match that of the water purveyor, and due dates must be at the same point in the billing cycle, no earlier than 10 days from mailing.
Any administration, billing, meter read, maintenance or any other fees are prohibited. There is a late fee maximum of 5% if the bill is unpaid within 20 days of due date. Any unpaid balance, in lieu of a late fee, may be deducted from the security deposit.
Maintenance and Repair
There are several stipulations regarding a Landlord’s response to requests for Submeter information. If so requested, a Landlord must provide:
- All installation and maintenance records of Submeter (name, license number and contact information of the installer);
- Most recent test results;
- Method and source of rates.
If requested, a Landlord must repair leaks or malfunctioning fixtures (running toilets, showers, etc.) within 7 days of the request.
Submeter Testing
Under SB750, a Tenant may request that their Submeter be tested for accuracy. This test must be performed within 7 days of the request. The Tenant is responsible for payment of the test (up to a maximum charge of $75) unless his/her usage has increased by more than 25% for two consecutive billing periods, or the Submeter is found to be inaccurate as established by law. The test is not required if the Landlord can provide accurate test results within the past 2 years.
Summary
AUM, as a member of the Utility Conservation Coalition (UCC) worked in concert with a half dozen California apartment associations, the California Building industry Association, among others, to defeat AB19 in 2012. We are again starting to take action with SB 750, to either amend or defeat the Bill to best suit the needs of the multifamily community.
If you would like to discuss California SB750 or other legislative issues affecting your business, contact us below.
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Natural Gas Storage and Usage
Since our February market outlook, weather over much of the Northeast and Midwest has provided many challenges for the natural gas market due to colder temperatures and the resultant increased demand for heat. On Thursday, Feb. 28 the Energy Information Administration (EIA) reported a natural gas withdrawal from natural gas storage of 171 Bcf, meeting analysts’ expectations. There is currently 2.29Tcf of natural gas in storage which is 308 Bcf above the five year average figure. This current storage volume is still riding the upper range of the five year average trend (the blue line in the graph below). If current weather forecasts hold for the remainder of the winter, we should exit the heating season with natural gas storage volumes exceeding the five year average range.
Temperature Outlook
Despite the cold temperatures witnessed by most of the country during February, temperature forecasts for March continue to show that most of the country will witness above normal temperatures. The latest forecasts for April by NOAA reflect above-normal temperatures.
Courtesy EarthSat
Natural Gas Production and Pricing
The latest natural gas production data posted by EIA showed December natural gas production to decrease 1.1% compared to November’s record-high production of at 73.53 Bcf per day (lower-48 revised). Even with the decrease, December’s production is approximately 1% higher than December 2011. Considering record-level production and storage projected to end the withdrawal season above 2 Tcf, pricing will continue to experience downward pressure.
On Tuesday,February 26, the March 2013 natural gas contract settled at $3.427 per MMBtu.
Bottom Line
Natural gas market pricing will continue to remain under constant pressure as long as the forecasts for near term temperatures remain on the warmer side and storage numbers stay above the five year average line. The highest contract price for this winter season was posted for the December 2012 settle at $3.70 per MMBtu.
With the March 2013 contract already settled, the pricing cycle for 2012-2013 heating season is complete. Traders are now looking for April and beyond, trying to decipher demand notes for the upcoming cooling season. With expected natural gas storage numbers and consistent production, the stage is set for a possible price collapse and an excellent buying opportunity for supply contracts in the beginning of the second quarter.
In an interview with CBS News on Super Bowl Sunday, President Barack Obama noted that more tax revenue would be needed in order to reduce the U.S. deficit. Obama stated that he would seek to end deductions that are not available to all Americans, singling out carried interest, which refers to the tax rate paid by many private equity managers, venture capital, and real estate partnerships. Obama remarked, "We just want to make sure that the whole system is fair, that it's transparent, and that we're reducing our deficit in a way that doesn't hamper growth." From "Obama Questions 'Carried Interest' Tax Break" (CNBC News (02/03/13).
But while President Obama’s focus may have been on the financial markets, Multifamily becomes collateral damage. If Multifamily developers are taxed at 39.6% instead of 15%, future investments in multifamily projects are put at risk, leaving fewer buildings being developed.
Carried Interest Defined
A carried (or promoted) interest is a profits interest in a business deal that is larger as a share of the total return than the share of the initial equity investment. Under present law, if the income paid out as the carry is a capital gain, then the carry is taxed at capital gains tax rates (in general, up to 15%).
However, some critics, focusing on the hedge fund and private equity industries, have proposed taxing income due to a carry as ordinary income (up to tax rates as high as 35%) whether it originates as a capital gain or not.
The use of carried interest is common in real estate. A builder/developer will typically gain a carried interest in partnership with outside limited partners, who will invest a significant share of the initial equity for a project. The builder provides also provides some equity, but additionally acts as the entrepreneur and takes more of the economic risk. The return to the carry reflects this risk premium, and thus allows shifting the risk away from the limited partners and attracting capital to the deal.
For projects yielding non-capital gain income (for example, in single-family development), the proposal to tax carried interest as ordinary income would have no impact. But it would have a large and harmful impact for Multifamily developers.
For Multifamily projects, the income due to a carry typically arises as profit from the sale of an apartment building, which is a depreciable, capital asset. As such, this profit originates as a capital gain. The proposal to tax carried interest would arbitrarily redefine such income as non-capital income and tax it at a higher rate.
Impacts of Carried Interest Taxed as Ordinary Income
The impacts of taxing carried interest as ordinary income would have a dramatic effect on Multifamily. The National Association of Home Builders issued a report, "Increasing the Tax on Carried Interest: An Economic Impact Analysis".
The report notes that increasing the tax on carried interest would:
- Reduce property tax revenues to state and local governments by $1.2 billion per year
- $242 million allocable to Multifamily rental property
- Result in the loss of more than 18,000 jobs in 2010 and 33,000 jobs in 2011 due to reduced Multifamily rental housing construction
Have an opinion of carried interest or another topic critical to Multifamily? We want to hear from you!
Natural Gas Storage Capacity
There are several bearish factors working on the energy markets these days. On Thursday, January 31st, the Energy Information Administration (EIA), in its Weekly Natural Gas Storage Report, noted a smaller than expected withdrawal from natural gas storage, catching many analysts by surprise. Because of the below normal frigid temperatures recorded the prior week, most analysts were forecasting a larger than average withdrawal of up to 204 Billion Cubic Feet (Bcf). However, EIA reported a withdrawal of only 194 Bcf. This report caused a market sell off and a price drop for the prompt months. The natural gas volume currently in storage is still riding the upper range of the five year average trend as depicted by the blue line below. If current weather forecasts hold for the remainder of the winter, we should exit the heating season with natural gas storage volumes exceeding the five year average range.
Warmer than Normal Temperatures Expected in Coming Months
Temperatures in the East are warming up to the fifty degree mark while the US National Weather Service is forecasting above normal temperatures for most of the nation for its 6 to 10 day and 8 to 14 day forecasts. Even though the overall February temperature outlook has turned a little colder nothing extreme is forecasted while the March temperatures outlook still remains with above normal figures for the majority of the heating region.
Source: EarthSat
Natural Gas Production and Availability Continuing to Cause Downward Price Pressure
The latest natural gas production data posted by EIA showed natural gas production during November to have set another all-time high at 73.88 Bcf per day. As noted last week (New England Market Alert- January 23, 2012) the number of conventional natural gas rigs has decreased substantially since last year but the number of horizontal rigs in the shale gas fields makes up the difference. With production at record levels and consumption below average due to warmer weather the natural gas and in turn the electric markets are experiencing a downward price pressure. On Wednesday the February natural gas contract settled at a price of $3.23 per MMBtu.
The Bottom Line
Natural gas market prices will remain under constant pressure as long as the forecasts for near term temperatures remain on the warmer side. Pricing trend for this winter has already turned downward as seen on the NYMEX graph, the highest contract price this winter was posted for the December settle at $3.70 per MMBtu. With the February 2013 contract already settled and the traders looking at March and beyond the above normal temperature forecasts will drive prices lower. As stated earlier natural gas storage numbers are in line to end the winter above 2 Tcf while production has remained fairly constant. All these factors are setting up a stage for a possible price collapse and an excellent buying opportunity for supply contracts towards the beginning of the second quarter.
Take Advantage of Lower Natural Gas Pricing
AUM Energy Procurement Services evaluates your potential for reducing expense by purchasing natural gas and/or electricity through a deregulated supplier. This is part of AUM’s comprehensive suite of Energy Management Services designed specifically with multifamily in mind. In 2012, AUM was able to save Multifamily customers over $2.5 million in energy costs through its Procurement Services with an increase in portfolio property values of over $35 Million.
District of Columbia publishes final regulations requiring all large private buildings benchmark their energy and water performance annually.
On January 18, 2013, the District Department of the Environment (DDOE) published the final rulemaking for energy benchmarking of private buildings in the D.C. Register (60 DCR 367). This final rule-making puts into execution the District of Columbia Green Building Act (GBA) of 2006, as amended by the Clean and Affordable Energy Act of 2008, requires owners of large buildings in the District to benchmark the energy and water performance of their buildings using US Environmental Protection Agency's Portoflio Manager tool. These laws and pursuant regulations were passed to promote widespread understanding of energy and water use in the District, and to promote resource conservation.
Deadlines for reporting energy and water usage are as follows:
Do You Need to Comply?
The District of Columbia Sustainable Energy Utility (DCSEU) has established a help center to answer basic questions regarding your requirements for benchmarking and disclosure. The Most Frequently Asked Questions can be viewed here. The Penalty for non-compliance of this legislation is $100 a day.
As a Multifamily property owner, the whole building square footage is to be taken into consideration when determining whether or not you need to comply, but you only need to report common area utility usage data.
In addition, DDOE has developed several guidance documents, with technical details on what needs to be reported and how, including forms for requesting utility data, and instructions for the adjustments being made to the program for its initial year. The set of guidance documents also include several optional forms for requesting tenant that building owners and managers may find useful.
As your energy management partner, AUM offers expert execution on ensuring your data is properly loaded into EPA's Portfolio Manager and you have successfully reported your information to the DDOE.
AUM is an EPA Energy Star partner, and is uniquely positioned to ensure your compliance with these guidelines. Contact us below to find out how we can walk you through the maze of the Washington, DC Guidelines.
The Energy Information Administration noted on Friday a volatile winter for energy prices in the New England region.
The Report:
From Fox Business News: The Energy Information Administration (EIA), said that since November, average spot-market natural gas prices have been the highest in the US. Prices have posted premiums of $2 to $3 per million British thermal units (mBtu's) above the national benchmark.
A steady decline in gas supplies and lack of space on pipelines from the west and south, add to challenge in getting supply to the region, the EIA said. Natural Gas supply from Sable, Nova Scotia (a prime supplier to the northeast US natural gas market) is at "a fraction of its levels in previous years." Output was about 30% below the average in the first nine months of 2012, the EIA said.
The start of Encana Corp.'s Deep Panuke offshore natural-gas project, which could have offset some lost Sable supply, has been delayed from early 2013 to possibly midyear, the EIA said. Additionally, stronger demand in Canada also has limited available supply from Sable.
Because of a lack of local storage facilities, high-season demand, and a lack of locally produced gas along with remoteness from the rest of the North American gas-transmission grid, New England has historically relied strongly on Liquid Natural Gas (LNG) imports, including supply from Trinidad and Tobago and Yemen. Since November 2010, 25% of New England's daily gas demand has been met by LNG, and it has spiked to as high as 60% in winter.
The supply snags come as natural gas for power use is rising in New England. The EIA said gas use for power generation in the region was up 3% from a year earlier in the first 10 months of 2012.
Here is the complete Fox Business News Report.
Supply strain will be relieved through shale gas production and easing weather conditions. – Dimitris Kapsis, Executive Vice President and Chief Energy Officer, AUM
Natural gas production through conventional vertical rigs has decreased substantially over the last couple of years while production from horizontal rigs (shale gas) has in turn increased substantially. Overall production of natural gas has decreased approximately 1% year over year while the natural gas storage numbers are still on the high end compared to the five year average. The recent cold spell that is engulfing the Midwest and eventually the East will exercise some upward price pressure but if NOAA’s forecast for February and March calling for warmer than normal temperatures holds true we will exit the heating season with record high natural gas storage numbers. The upcoming spring season might experience another buying opportunity for natural gas and electric commodity.
New England is a volatile market when it comes to natural gas and electricity because it is the last major market in the supply lines of natural gas originating from Henry Hub in Louisiana. New England and especially the surrounding areas of Boston do not use diesel fuel for heating as much as their counterparts in NYC and DC so capacity issues in the Boston market especially during peak hours are substantial. With the lower pricing of natural gas over the last few years and especially 2012 many electric generators have switched to natural gas as their fuel of choice creating additional constraints on the supply grid. The close proximity of shale gas production in PA and NY provide an opportunity for the New England market for additional sources of natural gas delivery.
Overall natural gas pricing at current low levels is not sustainable for the long term, eventually the laws of supply and demand will kick in and stabilize the market at a level acceptable by both producers and buyers. What we do not see is pricing reaching the high levels of 2007-2008 where natural gas pricing reached $1.50 per therm.
You can protect yourself from market volatility with AUM Energy Procurement Services
AUM Energy Procurement Services evaluates your potential for reducing expense by purchasing natural gas and/or electricity through a deregulated supplier. This is part of AUM’s comprehensive suite of Energy Management Services designed specifically with multifamily in mind. In 2012, AUM was able to save Multifamily customers over $2.5 million in energy costs through its Procurement Services with an increase in portfolio property values of over $35 Million.