Plugging into Multifamily - The Official Blog of AUM

Energy Commodity Procurement Outlook - August

Posted by Dimitris Kapsis on Wed, Aug 13, 2014 @ 11:11 AM

 

Intro

Natural Gas Storage and Usage

Graph_1

Storage Levels Continue to Grow, but Not as Strong as Expected

Storage injections continue to replenish supplies depleted over our last winter; surpassing historic average injection rates for the 16th consecutive week. However, last week’s injection of 82 billion cubic feet fell short of expectations. US natural gas storage totaled 2.389 trillion cubic feet, further reducing the deficit from the 5-year average to 20% from 21.7% and down from a record deficit of 54.7% at the end of March.

 Chart

Weather Forecast : Transition to El Nino Conditions; Above Average Temperatures

Temperature Outlook

The weather agencies are all predicting a transition to El Niño conditions is underway. During El Niño conditions, the northern tier of the lower 48 states exhibits above normal temperatures during the fall and winter, while the Gulf coast experiences below normal temperatures during the winter season

The temperature outlook for August-October indicates above-normal temperatures in the West, Southern Texas, Southeast and parts of the Mid-Atlantic States. Below average temperatures may be felt in the Northern Rockies and Midwest.

Above average temperatures may lead to higher electricity consumption, resulting in higher prices. Also, higher temps may increase natural gas consumption at electric generation stations, thus causing reduced storage injections of natural gas. If the predicted above average temperatures occur, natural gas prices
may increase.

 Map

EC-Equal Chance for A.N.B.      A- Above      N- Normal     B - Below

Courtesy: NOAA

Energy Prices

Graph_2

Natural Gas Prices Move Up Each of the Last Three Weeks

Natural gas prices generally increase across most markets in August. NYMEX natural gas deliveries for September continue to rise since Mid-July; peaking over the $4.00/MMBTU level.

In August, Henry Hub prices started at $3.75/MMBTU and have steadily risen to market influencers like mild weather, increasing storage injections and a decrease in energy consumption typically cause prices to soften.

Energy Price Sensitivity in the Northeast

The Northeast natural gas prices have proven to be more sensitive to temperature than other regional markets. A few points about the Northeast energy and its correlation to temperature:

  • During summer months, the largest increase in natural gas consumption comes from the electric power generation sector, due to the increased need for cooling in homes.

  • As temperatures approached 90 degrees in New York and New England during July and August last year, natural gas spot prices surpassed $5 /MMBtu at hubs serving those areas. However, prices remained below $5/MMBtu at the national benchmark Henry Hub in Erath, Louisiana, and at the Tetco-M3 Mid-Atlantic hub near Philadelphia.

  • The northeastern United States is increasingly reliant on natural gas for power generation. In 2013, natural gas-fired power provided 44% of net electric power sector generation in the New England U.S. Census Division, versus a 26% naturally.

Graph_3

Note: Lines represent best-fit second-order polynomial equations based on a scatter plot of temperatures observed at major airports in each city, and prices at nearby market hubs. Best-fit lines do not extend to cover the entire range of all temperature and price observations. Spot prices are by delivery date.


Bottom Line: Natural Gas Prices Have Started to Move Upward

Are you Prepared?

Congratulations to all of you who secured long-term energy prices these past few weeks.

We have seen prices begin to move upward; when many market indicators would have normally driven it downward. Mild weather, low energy consumption and increased gas storage injections typically hold prices steady, if not cause them to drop. Now is the time to look at securing longer term natural gas and electric contracts of 24 to 36 months. Look to lock in winter gas now, before the El Niño and the real summer returns or a significant event happens.

As a caution to our clients during energy supply contract negotiations, please make sure transmission, capacity and ancillary charges are included in the price offerings and they are not just listed as a pass-through charge. We have seen several suppliers try to make their prices appear lower by not including these components in prices; just to give the appearance of lower prices. Don’t be fooled; let AUM help.

Tags: Energy cost, Utility expense Management, Energy consumption, Energy budgeting, Utility rate schedules, Multifamily, Energy Commodity Purchasing, Cost cutting