ENERGY PROCUREMENT MARKET UPDATE: MAY, 2017
Spring isn’t in the air
Unseasonably cold weather continues to support natural gas prices during what generally is a time of seasonal weakness for power pricing. Weekly storage injections have been hampered by low production and firm demand.
Despite this unseasonable firmness in the natural gas market, power pricing remains range bound at relatively attractive levels.
I continue to believe the annual highs have already been set this past January. High storage inventories, the potential of gas to coal switching and a resumption of production growth should provide a steady headwind against future strength. However the likelihood of a sharp spring price drop has greatly diminished. It may be time to pull the trigger ahead of the start of summer cooling demand.
While there has been a high level of volatility in the 2017 natural gas strip, the outer year strips remain stable and in contango. This explains why longer term supply contract rates offer more value in comparison to short term offers.
Fixed power pricing continues to be competitive on a historical basis and attractive long term fixed options are readily available. For larger load profiles, current market conditions may warrant considering a partially hedge indexed strategy. That can provide increases savings along with budget protection.
For those with little or no risk tolerance, fixed pricing continues to offer attractive options. In most cases, the further you go out, the better the pricing. However, no matter how attractive the longer terms compared to short term offers, you must remember, the longer the term, the greater the exposure to potential pass through adjustments such as NITS and PLC adjustments. Prior to signing a long term contract or actually any 3rd party supply contract, be sure to thoroughly review it with an energy professional. Remember, there is a major difference between getting the lowest price and getting the “RIGHT PRICE”.