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production and a mild start to the
2014-15 winter season. By the end of
February 2015, storage was about
500bcf higher than the same time in
2014, but about 140bcf below the
five-year average.
What do these numbers mean for
energy pricing? Storage should be in
pretty good shape heading into the
summer 2015. But the question will
be how hot the weather will get. A
very hot summer will mean more gas
being used at electric power plants,
which will reduce the amount of gas
going into storage.
2. Retirement of Coal-Fired Power
Plants:
Natural gas generation of
electricity continues to grow as coal-
fired power plants are retired. This
has created a permanent increase in
demand for natural gas. A few key
statistics are:
• Natural gas has become the fuel
of choice for electric generation,
especially as new EPA standards
impact 1,400 coal and oil units.
• Scheduled coal plant retirements
between 2013 and 2020 will result
in increased natural gas
generation.
• Approximately one-third of
electricity in the U.S. is generated
using natural gas. Another one-
third is coal and the last one-third
is comprised of all other (nuclear,
renewable, etc.).
As coal-fired power plants are
retired, the increased base load
natural gas demand for electric
generation will increase price
sensitivity.
3. Natural Gas Exporting (Liquid
Natural Gas):
In 2015-2016, large
energy companies will begin
exporting natural gas to Asia and
Europe where they can achieve prices
roughly triple the price in the U.S.
This will cause a longer term change
to the supply-demand balance. It will
also begin what could be a transition
from a North American natural gas
market to a global natural gas market
(similar to oil).
WHERE DO PRICES
GO FROM HERE?
Natural gas and electric prices are at
very attractive levels and are not far
off from a 10-year low. How long
prices will stay here remains to be
seen. Weather will certainly be a
driver in the short term. Longer term,
we see demand for natural gas
increasing due to coal plant
retirements and increased natural
gas exports. This increased demand
will put upward pressure on both
natural gas and electric prices. At
these current levels, customers
should give serious consideration to
locking into a longer term deal.
PROACTIVE
MANAGEMENT IN
AN UNPREDICTABLE
MARKET
Energy procurement should not be
an annual task, or something
reviewed just prior to the expiration
of a supply contract. This is an
ongoing process which, if managed
correctly, can lead to positive bottom
line results despite the extremely
volatile market.
There are two important strategies
that can be employed when
structuring an energy supply
agreement to limit exposure to price
run-ups or spikes:
1. A Fixed Price Agreement:
This is
a common strategy that provides a
customer with price and budget
certainty. In this case, usage
becomes the only variable that
needs to be monitored and
managed.
WWW.7X24EXCHANGE.ORGWorldwide Natural Gas Prices
– Snapshot as of June 2014:
• United States: $3.80 /dth
• Europe: $7.80 /dth
• Asia: $14.00 /dth
• South America: $15.00 /dth