Plugging into Multifamily - The Official Blog of AUM

January Energy Outlook

Posted by Alison Hoss on Tue, Jan 13, 2015 @ 04:23 PM

Jan15_Intro

Natural Gas Storage

Mild December Weather Curbs Withdrawals -  Storage Levels Finally within 5-Year Average Range 

As of EIA’s December 26th Storage Report, storage levels were at 3,220 BCF; 232 BCF above the same period in 2013, yet still below the 5-Year average by 3%.  The current 3,220 BCF storage level marks the first time since November, 2013 in which total working gas is within the 5-year historic range (the gray band shown on the chart below). We started this withdrawal season at a 10% deficit below historic 5-year averages.  Due to our mild December, withdrawals have been small and have not bled reserves like last December and January.

Jan15_Storage_Table

Working Gas in Underground Storage Compared with the 5-Year Maximum and Minimum - Billion Cubic Feet

Jan15_Storage_Graph

 

Weather Forecast: Colder Temperatures for the South 

January has started out with frigid cold, but is expected to end mild throughout most of the US.  Only Texas and the Central States are predicted to experience below-normal temperatures.

The long-range forecast show below-normal temperatures for Texas through Virginia.  The West Coast will experience above normal temperatures.

Jan15_Temp_Outlook

 

Energy Prices

Natural Gas

December was a great month for energy prices. Warm temperatures dampened the heating demand for natural gas and record high gas production applied downward pressure to energy prices; causing natural gas prices to drop 6% and electricity prices dropped 1%. The last two weeks of December were significant with the NYMEX average 12-month price for natural gas closing down 12% and the PJM 12-month average price for peak power dropping 7%.

February natural gas contracts continued to fall to $2.882/MMBtu, despite the cold spell in early January reaching across most of the country.  This week’s cold temps are expected to end and a return to above-normal temperatures is expected.  Short-Term cold spells should be expected, but unlike last winter, they are not expected to last for extended periods.

 

Jan15_Natural_Gas_Prices

Electricity

As natural gas prices go, so follows electricity prices.  Most all electric markets have seen a corresponding dip in prices; however not as noteworthy.  Our biggest concern today on the electric front comes from significant increases on the utility standard/default service rates.  Large increases have been enacted in the Northeast and Midwest.

Bottom Line

Mild December Weather Offsets Low Storage Levels

This Holiday Season brought us three gifts: mild December temperatures, limited storage withdrawals, and record gas production levels throughout  the injection season. The combination of these events has offset lower-than-normal storage levels. As a result, natural gas prices fell to the lowest levels in 2 years, down 35% since November.  At a time when prices usually escalate ahead of the peak season for heating demand, the warmer-than-normal December and record production has limited storage withdrawals.

 

Tags: Energy cost, Energy procurement, Multifamily, Energy market, EnergyBlogs, energy benchmarking

December Energy Outlook

Posted by Alison Hoss on Mon, Dec 15, 2014 @ 02:32 PM

December_Energy_Outlook___1

December_Energy_Outlook__2

 

Injection Season is Over – Stockpiles Higher than Expected

As of today’s storage report, storage levels are at 3,359 Bcf, which is shows a withdrawal of 212 Bcf since our November Energy Outlook.  Withdrawal season has begun.  At current levels, we go into this winter 351 Bcf under the 5-year average.  Being 10% below historic levels places the market at risk if near term cold temperatures strip away the smaller storage stockpiles. Currently, December temperatures are predicted to be mild and small withdrawals may not stress storage levels or have a large impact on price. 

December_Energy_Outlook_3

Weather Forecast

Near Term Mild Temps - 2015 Brings Colder Temps to the South

Temperature Outlook

December tmperatures have been mild, bringing much rain to both coasts.  The first quarter of 2015 looks to deliver above average temperatures in the West and in far Northeast.  Below average temperatures are predicted for most of the South and Southeast; ranging from New Mexico to Virginia.  The Midwest, Central Plains, Ohio Valley and Mid-Atlantic are predicted to have normal winter temperatures. 

Near-term temperatures will be critical to energy prices going into 2015.  Any cold snap may result in earlier and stronger natural gas withdrawals than expected; causing prices to increase.

December_Energy_Outlook_4

December_Energy_Outlook_5

Energy Prices

Natural Gas

The January 2015 gas contracts gained this week, settling at $3.652/MMBtu.  Traders took advantage of oversold conditions, which resulted in Monday’s drop under $3.60/MMBtu, to cover short positions in anticipation of a colder January.  Much of the bounce back up is attributed to technical support at the $3.60 level.  Congrats to everyone who was positioned and ready to capitalize on Monday’s price dip.

So far, December has been much warmer than originally expected.  Normal to above-normal temperatures are expected to continue until at least Christmas, which is nothing like the below-normal temperatures originally forecast for December.  January and February are still forecast to be below-normal, yet not quite as cold as last winter.  The big question is … “when the cold eventually materializes, will prices rally due to increased demand for natural gas or will storage be enough to stabilize prices?”

 

Remember Natural Gas Spot Prices from Last Year (Henry Hub)?

December_Energy_Outlook_6

Electricity

The latest energy challenge has occurred on the electric side.  Most Northeast states will see huge increases in default electric rates.  Some have already gone into place and most will start on January 1st.  Below is a table of the Northeast states and their approved default service rate increase.  If you are on default service your price will go up.  Give AUM a call to help you avoid these price jumps.  You can easily avoid these price increases through our energy procurement services.

December_Energy_Outlook_7

 

Bottom Line

Mild December Weather has Offset Low Storage Levels

The mild December weather has dampened the typical seasonal price jump.  We have experienced periods of price dips, enabling prepared buyers to take advantage.  Some concern exists with storage levels 10% below the 5-year historic average.

Time is running out to lock in fixed natural gas prices for this winter.  Waiting until after Christmas will force you to be exposed to market prices in January and possibly February; the most volatile gas price months.  Take Action NOW, or roll the dice on winter gas prices.

Default Electric prices will be going up significantly in the Northeast.  Almost all NE states have approved rate increases in place or set to become effective on January 1st.  Start locking in your energy now to avoid those ugly default rates.

Tags: Energy procurement, Energy market, Energy Efficiency

Energy Commodity Outlook - August 2013

Posted by Dimitris Kapsis on Mon, Aug 12, 2013 @ 09:30 AM

Outlook

We continue to believe that the risk of higher pricing for both natural gas and electric supply outweighs any pricing downturn opportunities.  Since we are currently experiencing a buying opportunity, clients should consider covering some or all of their electric and natural gas exposure for the remaining summer loads if they have not done so already.  If all goes well with temperatures, natural gas injections and the hurricane season, we could see additional buying opportunities in the late September early October timeframe.  At that point clients should highly 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

July 2013 gave us a real taste of summer heat throughout the country. Power plants were working overtime and the need for natural gas was very high.  On Thursday, August 1st the Energy Information Administration (EIA) reported a natural gas injection into storage of 59 Bcf, slightly above the analysts’ expectations.  As a result natural gas in storage is currently at 2.845 Tcf, 34 Bcf below the five-year average figure and 368 Bcf below last year’s level.


Gas Injection August

 Natural gas storage inventories are still lower than last year’s levels, and the five year average, but the variances continue to shrink with every week’s storage report.  Most of the country experienced a heat wave in the middle of July that directly affected natural gas storage injections but as shown with the latest injection as soon as the weather returned back to normal temperatures the numbers bounced up immediately.  This week’s injection of 59 Bcf more than doubled last year’s injection of only 28 Bcf, and was 25% higher than the five-year average of 47 Bcf. 

describe the image 

 

The traditional storage injection season runs through October 31st , so we have three months left with storage injections forecasted to continue strong, and expectations still standing for the natural gas market to possibly loosen up further.

 

Temperature Outlook

The weather forecasters missed the extended July 2013 heat wave that resulted in 120-degree temperatures in the Southwest and Chicago areas. Believe me, having lived in the Washington, DC area for more than twenty years and currently residing in the Western Suburbs of Chicago, it was definitely a flash back; who doesn’t love a 90-degree day with 75% humidity and a heat index above 100?  This month’s report will not include a weather forecast because most likely it would miss its mark anyway.  We still have two full months of summer temperatures and the hurricane season will be entering its peak period.

 

Natural Gas Production and Pricing

Natural gas production continues to nationally 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 made by many electric generators is the $4 per MMBtu mark. Sustained pricing above this mark means that the 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.  When we have a situation of high electric demand such as the heat wave that covered most of the US a couple of weeks ago, the generators do not have a choice but to fire up their peak units which are predominately natural gas driven.

On Tuesday, July 30th the August 2013 natural gas contract settled at a price of $3.459 per MMBtu, a drop from the July settle.  The NYMEX Natural Gas settle curve depicted below includes a polynomial trend line (red line) which shows a sustained upward pricing curve; we are hoping the latest pricing break will allow for a reversal by the end of the summer season.

describe the image

  

Bottom Line    

Currently the 12-month average forward pricing curve for natural gas is at $3.69 per MMBtu, compared to last month’s $3.785 per MMBtu price.  In addition the five month pricing curve for the upcoming heating season, November 2013 through March 2014, dropped to $3.72 from last month’s $3.85 per MMBtu.  The heat wave experienced by the majority of the country in mid-July had its temporary effect on pricing, but the current lower-than-average temperatures have caused pricing to drop.  As stated last month, the market appears to be bouncing off a bottom limit and several buyers have started to take advantage of the current low 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 to $4 per MMBtu range for the rest of the year. 

The fact still 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 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.  A coastal storm such as Sandy could create major disruptions and substantial price spikes particularly for these markets.


Tags: Energy cost, Energy consumption, Conservation, Energy budgeting, Energy procurement, Energy rates, Utility rate schedules, Energy Information Administration, Multifamily, Energy Commodity Purchasing, Energy market

AUM Energy Outlook - July 2013

Posted by Dimitris Kapsis on Mon, Jul 08, 2013 @ 11:52 AM

 

Natural Gas Storage

June 2013 was a month of normal to below average temperatures in the Northeast and Midwest and fairly wet.  For once weather forecasts came to fruition and natural gas pricing followed the expected related downturn.  On Thursday, June 27th the Energy Information Administration (EIA) reported a natural gas injection into storage of 95 Bcf, in line with analysts’ expectations.  As a result natural gas in storage is currently at 2.533 Tcf, 31 Bcf below the five-year average figure and 522 BCF below last year’s level.

Gas Injection July resized 600 

Natural gas storage is still lower than last year’s levels and the five-year average but the variances are consistently shrinking with every week’s storage report.  During June the natural gas storage buildup reached 392 Bcf compared to last year’s same period buildup of only 250 Bcf.  If the storage injections continue at the same pace we should see the natural gas market loosening up further.  As forecasted last month the first triple-digit storage injection of the season was made the week of June 3rd; ahead of the five-year average and last year’s same period injection.

July Storage resized 600

 

Temperature Outlook

July and August temperatures for the Northeast and Midwest are projected to stay within normal to slightly above normal ranges.  Lower air conditioning demand should help keep energy pricing down and allow for higher than average injections to boost natural gas storage figures.  Both regions experienced large increases in natural-gas electric generation last year.  Due to higher prices for natural gas this year compared to last year electric generators have shifted back to coal as their main fuel thus reducing demand in the electric generation sector.  The hurricane season is still a wild card with forecasts of above average activity; we still have not entered the peak hurricane season, which centers around August and September, so more news to follow in the near future.

July Temps resized 600

 Courtesy EarthSat

 

Natural Gas Production and Pricing

Our national dry natural gas production continues to exceed last year’s levels.  In addition the switch from coal electric generation to natural gas generation has slowed down dramatically, while the higher natural gas pricing compared to last year has allowed several coal plants to recover some of their lost generation from the earlier fuel switches.  If the mild temperatures continue in the heavy electric usage locations such as the Northeast and Midwest, we have the potential for even softer prices.

On Wednesday, June 26th the July 2013 natural gas contract settled at a price of $3.707 per MMBtu, a drop from the June settle and a break from the upward pricing curve of the last three months.  The NYMEX Natural Gas settle curve depicted below includes a polynomial trend line (red line) which shows a sustained upward pricing curve; we are hoping the latest pricing break will allow for a reversal by the end of the summer season.

 Gas Settle   July resized 600

 

Bottom Line   

Currently the 12-month average forward pricing curve for natural gas is at $3.785 per MMBTU, compared to last month’s $4.157 per MMBT.  In addition the five-month pricing curve for the upcoming heating season, November 2013 through March 2014, is at $3.85 per MMBTU.  Last week was the turning point for natural gas pricing with substantial drops; it appears that the market might start to bottom out while several buyers have started to take advantage of the current low pricing in order to cover their positions for the upcoming winter loads.  As stated last month, according to several energy executives polled earlier in May, natural gas pricing is expected to remain in the $3 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.  A coastal storm such as Sandy 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 supplies greatly outweighs any pricing downturn opportunities.  Clients should consider covering some or all of their electric and natural gas exposure for the upcoming summer loads if they have not done so already. If all goes well with temperatures, natural gas injections and the hurricane season we could see a buying opportunity in the late September/early October timeframe.  At that point clients should consider 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.

 

About AUM

In 2012, we experienced unprecedented growth in our business due in large part to a relentless focus on increasing property values for our client property owners.  In 2012 alone, we:

  • Processed 700,000 energy and utility invoices worth $157 million with 99.7% data capture accuracy and 99.9925% on-time payment;
  • Collected over $6 million in vacant charges that would have gone uncharged to residents and paid by Property Owners;
  • Issued 4.5 million billing statements representing $931 million in recovered expenses
  • Increased property values by $125 million through reduction in energy expenses using on-site energy audits;
  • Managed 145 million kWh and 13 million therms through energy procurement in deregulated states.

AUM’s suite of services is designed to be a complete energy and utility management solution. Effective energy management ensures proper energy allocation (Resident Billing Services), energy accounting (Invoice Processing Services), and rate and usage management (Energy Management Services).

For more information on how AUM Clients are using AUM’s complete financial package for Energy and Utility expense management to save up to 25% on their energy expenses, just click on the button below.

  

Tags: Energy cost, Energy consumption, Conservation, Energy budgeting, Energy procurement, Energy rates, Utility rate schedules, Energy Information Administration, Multifamily, Energy market, EnergyBlogs

AUM Energy Outlook - June 2013

Posted by Dimitris Kapsis on Wed, Jun 05, 2013 @ 09:52 AM

Natural Gas Storage and Usage

It was not so long ago that we were mentioning snow in our forecasts but we can safely state now that spring weather has finally taken over and summer temperatures are just around the corner.  On Thursday, May 30th the Energy Information Administration (EIA) reported a natural gas injection into natural gas storage of 88 Bcf, in line with analysts’ expectations and above last year’s injection and the five-year average.  As a result natural gas in storage is currently at 2.141 Tcf, 88 Bcf below the five-year average figure and 664 Bcf below last year’s level.

Gas Injection June

Natural gas storage is still lower than last year’s levels and the five-year average but the variances are consistently shrinking with every week’s storage report.  During May the natural gas storage buildup reached 276 Bcf compared to last year’s same period buildup of only 168 Bcf.  If the storage injections continue at the same pace we should see the natural gas market loosening up.  It is expected that EIA will report the first triple-digit storage injection of the season the week of June 3rd; ahead of the five-year average and last year’s same period injection.

June_storage

 

Temperature Outlook

June temperatures for the Midwest and the Southeast are projected to be within normal ranges.  Both regions experienced large increases in natural-gas electric generation last year. Normal temperatures should help keep pricing down.  Overall as the weather began heating up over the last several weeks, natural gas usage for heating throughout the US decreased substantially but usage in the electric generation sector rose as leading generators continued to use up their existing natural gas stockpiles. Due to higher prices for natural gas it is expected that most of the generators will shift back to coal as their main fuel thus reducing demand in the electric generation sector.  This month we are including the temperature forecasts for June and July with the following disclaimer: “Review with caution, information can change without any notice.”  In addition hurricane experts have called for an above-average active hurricane season.

 June_Temps

Source:  MDA Earth Sat

Natural Gas Production and Pricing

Our national dry natural gas production continues to exceed 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 also had several idle nuclear plants come back on line over the last few weeks further reducing the demand for natural gas. 

On Thursday, May 30th the June 2013 natural gas contract settled at a price of $4.148 per MMBtu, almost identical to the May settle.  The NYMEX Natural Gas settle curve depicted below includes a polynomial trend line (red line) to show that we have entered a sustained upward pricing curve which we are hoping flattens out over the summer months.

June_Gas_Settle

 

Bottom Line

Currently the 12-month average forward pricing curve for natural gas is at $4.157 per MMBTU.  It appears we have finally entered the spring season and the upcoming summer season appears to be approaching with mild temperatures.  According to several energy executives polled earlier in May natural gas pricing is expected to remain in the $3 to $4 per MMBTU range for the rest of the year.  

The fact is 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 reached in May, 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.  Coastal storms such as Sandy can create major supply disruptions, causing substantial price spikes, particularly for these markets.

Clients should consider covering some or all of their electric and natural gas exposure for the upcoming summer loads if they have not done so already; if all goes well with temperatures, natural gas injections and the hurricane season we could see a buying opportunity in the late September early October time frame.  At that point clients should consider 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.

Tags: Energy cost, Energy consumption, Conservation, Energy budgeting, Energy procurement, Energy rates, Utility rate schedules, Energy Information Administration, Multifamily, Energy market, EnergyBlogs

AUM Energy Market Outlook - May 2013

Posted by Dimitris Kapsis on Mon, May 06, 2013 @ 11:29 AM

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.

 

Gas_Injection-May

 

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.

May_Storage

 

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.

May_Gas_Settle


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.

Tags: Energy cost, Energy consumption, Conservation, Energy budgeting, Energy procurement, Energy rates, Utility rate schedules, Energy Information Administration, Multifamily, Energy market, EnergyBlogs, Risk tolerance

AUM Energy Market Outlook - April 2013

Posted by Dimitris Kapsis on Fri, Apr 05, 2013 @ 10:46 AM

 

 

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.  

storage bubble   April

 

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.

April Storage

 

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”.

temperatureoutlook april

 

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.

Gas Settle   April resized 600

 

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.

Tags: Energy cost, Energy management, Energy consumption, Conservation, Energy budgeting, Energy procurement, Energy rates, Utility rate schedules, Energy Information Administration, Multifamily, Energy market, EnergyBlogs, Risk tolerance

AUM Energy Market Outlook - March 2013

Posted by Dimitris Kapsis on Mon, Mar 04, 2013 @ 11:58 AM

Natural Gas Storage and Usage

Natural Gas Energy OutlookSince 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.

march Storage Numbers

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.

 Temperature Outlook

    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.

March Gas Settle 

 

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.


Tags: Energy management, Energy procurement, Pricing, Energy rates, Utility rate schedules, US Energy Group, Multifamily, Utilities, Heating, Historical utility costs, Energy market

MARKET ALERT - Low Supply Causing Rise in Energy Prices in Northeast

Posted by James Kenneally on Wed, Jan 23, 2013 @ 01:03 PM

describe the imageThe 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.

Find Out How


Tags: Energy cost, Utility expense Management, Energy management, Energy procurement, Market alert, Energy rates, Utilities, Energy market, Case study, Electricity, Fossil fuels

Shopping for power: Fix, float, or custom-fit your energy procurement contracts

Posted by Dimitris Kapsis on Wed, Jan 26, 2011 @ 04:01 PM

Blogpic66If you’re operating your business in New York, Texas, California or one of the many other states with deregulated electricity and/or natural gas markets, you might still be trying to understand how to capitalize on these supply opportunities. After decades of monopoly-like pricing, energy market deregulation continues to spread across the U.S.

The energy industry was one of many in the U.S. to become regulated by the federal government in the late 19th and early 20th century. For all intensive purposes, public utilities became legal monopolies at this time. By removing competitors from the market, the number of overhead electrical wires and underground natural gas pipes was kept to a minimum.

It was up to each public utility entity to contract with energy suppliers and transporters for each jurisdiction’s energy needs. Entry to some markets was restricted to stimulate and protect the initial investment of private companies into infrastructure to provide public services such as water, electric, and communications utilities. By highly restricting the entry of competitors, price and economic controls were put in place to protect the public.

All of that changed in 1978. When Congress passed the Public Utilities Regulation Policies Act (how about that, a regulation that deregulates), it essentially unbundled the process of energy generation, transmission, and distribution. Eventually, Electricity and Natural Gas Choice programs allowed residential and small volume natural gas users to select a supplier other than the traditional utility. Currently, there are 16 electricity states and 36 natural gas states with some form of deregulation. Hundreds of unregulated electric and natural gas suppliers operate in those states.

Remember, deregulation is about choice. The concept is that a free market eventually forces prices down. However with that choice multifamily owners must understand the buying factors involved in procuring their energy. In deregulated markets energy procurement falls under two types of contracts:

    • Fixed-price contracts. The energy purchaser agrees to pay a fixed price for a specific period of time. Usually, these fixed-price terms are for 12 months, but can be longer. This type of contract allows for easy budgeting and minimal risk, but when the price dips below the contracted rate, multifamily business owners do not benefit from any potential savings.
    • Variable contracts. The energy purchaser agrees to ride the commodity index pricing curve and carry the liability of market fluctuations. Budgeting is more difficult, but the purchaser is never paying more than the going market rate and the majority of the time index pricing provides savings compared to the utility's default pricing.

The contracted rates that multifamily owners can negotiate are difficult to predict. Single properties cannot negotiate favorable rates relative to other, larger industrial and business users in a market. Pooling multiple properties together proves difficult due to varying weather in regions across the country with diametrically opposed energy needs.

Imagine this: You’re heating your Boston property with natural gas during a brutal Massachusetts winter. In the same year you’re cooling a Dallas high rise with electricity during the hottest months of the Texas summer. This is where negotiating the energy rates that work across your portfolio gets complicated.

Fixing the price of the supply commodity contract or letting it ride the market curve (called monthly index pricing) are just the two extremes. Multifamily owners have many options that fall in the middle ground, combining the benefits of each option. The number of available options and suppliers can be overwhelming, and that’s even before you start wading through contract terms (pricing, service fees, service periods, cancellation fees, default remedies, evergreen clauses, etc.) that can be negotiated prior to execution of any contract.

Discussing your business’s unique needs, corporate culture, and risk tolerance with a professional consultant or commodity marketer will help you evaluate all your options and make decisions that will keep your costs down. But in the meantime, here’s the rule of thumb for deregulated energy procurement:
If a supplier doesn’t offer a full array of procurement possibilities it’s time to move onto the next supplier and open up negotiations. Lack of options on behalf of the supplier tends to show they have credit weakness in the market or prefer to pass all the risk to the client.

This is something we can help you tackle at AUM. Procurement strategy advising is one of our greatest strengths, and it’s a service that can make a significant difference to your bottom line. Contact me to learn more, or leave your questions in a comment here. Are you operating in a newly deregulated market? What kinds of challenges have you faced?

Tags: Energy management, Energy budgeting, Energy procurement, Natural gas, Pricing, Multifamily, Utilities, Heating, Energy market, Legal and Regulatory, Risk tolerance, California, Electricity, Texas, Regulatory, Boston, New York, Cooling, Deregulation, Public Utilities Regulations Policies, Services periods, Evergreen clauses, Massachusetts, Dallas, Public utility