Plugging into Multifamily - The Official Blog of AUM

Energy Commodity Purchasing Outlook - November, 2014

Posted by Alison Hoss on Fri, Nov 07, 2014 @ 03:11 PM

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Injection Season is Over – Stockpiles Higher than Expected

The traditional Injection Season has ended and gas storage levels saw a healthy jump in October, up 583 BCF.  Some experts still expect a couple more weeks of storage injections through the middle of November. This past April, storage levels were 55% below the five-year average and no one expected injection levels to get  anywhere close to those historic levels.  But strong injections through the summer lifted stockpiles to within 6% of the five-year level.  The robust injection season has alleviated some of the supply concerns going into this winter season. 

A word of caution, colder temperatures are predicted for the first half of November, which could result in gas constraints or possible withdrawals in November.

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Weather Forecast

Near Term Unseasonably Cold Temps – Overall, Not a Rosy Picture

Northeast & Mid-Atlantic: Repeat of Last Year?

Forecasts indicate similar cold and snow to last winter.  Expect cold surges in November, with Polar Vortex temperatures hitting in January and February.  Higher than normal snowfalls are predicted west of the I-95 corridor.

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Southeast, Gulf States & Tennessee Valley: Concerns over Rain & Ice.

Expect extreme ice events from Texas to eastern Kentucky in January through early February. A very wet winter is predicted with possible risk of flooding from large storm systems. The current weather pattern sets up Florida for significant and severe weather potential in mid- to late winter.  Tornadoes will be possible from mid-January to February.

Midwest, Ohio Valley, Northern & Central Plains: Dry & Less Harsh.

Expect several cold months for the Midwest, although not as extreme as last winter.  Below-normal snow fall totals are predicted.  The Northern and Central Plains are expected to see temperatures on a roller-coaster; up and down all winter; lessening risk of high total snowfalls.

Northwest & Northern California: Some Precipitation, but Not Enough to End the Drought

California has seen its fourth year of drought and is in dire need of precipitation.  In California, the Northern Sierra and Sierra Nevada, rainfall is predicted to be below normal.  December will bring some rain to northern California, but eases off in the following months, making the region drier than normal by February.  After a season of intense wildfires, the precipitation that reaches the Northwest will not be enough to prevent problems next year.  Southern California looks to see slightly above-normal precipitation this season, especially in areas farther from the coast.

Southwest & Southern Plains: West & Rainy; Possible High Snowfalls

A weak El Nino may bring high rains to the Southwest.  The Four-Corner region, as well as Northwest Texas, Oklahoma and Kansas, may get above-normal snowfall totals.

 OVERALL: Weather is NOT expected to be friendly to energy prices this winter.

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What is the Polar Vortex?11-7-2014_11-49-45_AM

A polar vortex is a persistent, large-scale cyclone located near either of earth’s geographical poles.  The polar vortices are located in the middle and upper troposphere and the stratosphere. On occasion, the cyclone slip down away from the North Pole and brings with it frigid temperatures and “Polar” conditions.

Energy Prices

Prices Climb for 7th Day in a Row

For the 7th day in a row, natural gas spot prices for December have risen; as high as $4.315 per MMBTU. NYMEX Futures prices traded as high as $4.325 per MMBTU.  October trading began at $4.003/MMBTU. Despite positive storage reports, the forecast of cold weather have driven prices up.  Bullish speculators are betting on the cold winter weather to increase early-winter demand for heating fuel.  Analysts are concerned if we get a repeat of last winter, storage supplies will dry-up quickly. In addition, the pipeline bottlenecks from last year have not been corrected, resulting in constraints on gas deliveries and price spikes if storage levels drop significantly.

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Bottom Line

Predictions of Another Harsh Winter Have Driven prices Up.

Even when we get good news from a solid natural gas injection season, prices still climb.  Mother Nature has spoken again and her threat of bad weather has started November off with a significant price spike of over 30¢ per MMBTU in the last 30 days.

Congrats to those who locked in prices in October!  The early November cold spell has driven prices up.  We suggest you quickly lock-in prices before temperature  forecasts get worse. By the way, we have seen predictions of gas storage WITHDRAWALS in November. It’s way too early to start removing significant gas from storage.

A quick note for our New England Clients; electric default pricing for the upcoming winter months is topping $0.20 per kWh in many jurisdictions, forecasts of 20-30% year over year increases in electric costs have flooded the market.  There is still time to lock in lower rates for a December contract start but the window is getting smaller.

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