ENERGY PROCUREMENT: ENERGY MARKET UPDATE Q1 2017
How will current energy market fundamentals and the new national political landscape impact your utilities budget and contract energy rates.
NJGEC believes the energy market is setting up for another buying opportunity this spring as we enter the seasonal storage build cycle with healthy base line inventories. We are looking for the market to make a low in the late April – early June time frame prior to the start of the summer demand season. This will be a great time to extend contracts through Q3 2019 to lower your energy rates and secure long term budget certainty.
Punxsutawney Phil forgot to notify the market that he saw his shadow.
Following the 11th warmest January on record, NYMEX March natural gas futures closed out the first week of February at $3.03, a full 20% off its December high of $3.82. Following suit, electric power prices broke the uptrend that begun in early November.
If sustained, this change in trend will reduce energy rates in the intermediate term.
Although, the EIA reported a bullish weekly natural gas inventory draw of 147 Bcf that compared to a five-year average draw of 138 Bcf, the market remained focused on the warmer intermediate term weather forecasts, healthy inventories slightly above the five-year average and an expected increase in production fed by an 83% jump in the rig count from the May, 2016 low of 404 largely spurred by the recovery in crude oil prices.
Enough about the market, let’s talk politics. With the Republicans in control of Washington, expect the regulatory environment to take a 180 degree turn putting the brakes on the coal generation decommissioning and erasing fears of the regulatory handcuffing of the US fracking industry. This should increase the risk appetite of the US oil and gas explorers resulting in increased drilling activity.
Energy Procurement strategy:
Due to the lack of market volatility during the summer of 2016, one of the hottest summers on record, combined with the favorable market and regulatory outlook, it may be a good idea to consider a partially hedged index strategy over a fully fixed contract.
Maintaining a risk adjusted, partial exposure to the real time energy market can measurably reduce monthly utility rates.
The energy procurement experts at NJGEC will analyze your load profile and risk tolerance and then customize an index hedging strategy that will outperform most standard fixed rate contract.
Please contact NJGEC at 973-287-7797 with any questions and to schedule a complimentary review of your energy management strategy.