Energy Market Update-November 2017
Edge Insights energy experts are constantly monitoring energy market conditions in order to help ensure the best possible pricing and contract terms for our clients. The following report is a snap shot of current conditions intended to help our clients stay informed of market dynamics.
Natural Gas Market Overview:
Since June of this year the Nymex market has continued to trade in a range from $2.70 to $3.10. Investors are watching the end of season storage injections and temperature forecasts for the coming weeks very closely. We know we are going to be below last year’s storage levels, but how much will depend on the average temperatures, which if remain above normal, will provide additional flow into storage and extend the injection season.
Natural Gas Storage Update:
The storage report for week ending 10/27 shows the addition of 65 Billion Cubic Feet (Bcf). This is -1.1% below the 5-year average by 41 Bcf, and 180 Bcf below last year at this time. Current storage levels are now at 86.3% of total capacity.
Current Market Movers:
Bearish: (lower prices)
- Short term; expected storage injection for week ending 11/3 will add to end of year storage levels. The official end of the injection season was October 27th.
- Because of technical advancements in the extraction process, gas production remains strong. Estimates project an 8% increase through January over last year.
Bullish: (higher prices)
- Short term; 3 to 4 week forecasts show heating demand across the northern tier as we move towards winter months. (outlook map on right)
- Consumption estimates are higher than last year due to of an ever increasing volume of shipped LNG and compressed gas exports to Mexico.
- Average temperatures for the upcoming winter are expected to be colder than the previous two years, while still remaining just below the 10 year average for January and February. (chart below)
Depending on market conditions, Edge Insights may recommend a ‘hybrid’ type electric contract. Under a hybrid contract a customer would have the option of locking in a certain percentage of kWh usage rather than the entire load. For example, a 50% hybrid contract would have 50% of the kWh load locked in at a known rate and the remaining 50% would float on the day ahead energy market. We have found that these type of products can provide more flexibility than would a ‘full fixed’ contract. With a hybrid, we are able to lock a portion of electric usage at a favorable price and then monitor and react to changing in market conditions. If markets trend lower clients can enjoy additional savings and if markets are trending upward we can lock in the remaining usage to mitigate risk.
Hybrid contracts are not for everyone. For customers under 1,000,000 annual kWh, hybrids are generally unavailable. Also for customers who want a known rate and budget certainty, the hybrid product may not be a good fit. But for customers who don’t fall into these two categories, the hybrid product may be a very nice fit for your business.
Ranking for longer term contacts is good at this time. Timing purchases is important due to high market volatility as we approach the high heat demand months.
The market opportunity is a ranking of how we perceive timing of contract purchases or hedging natural gas or electric.
Information provided by the Energy Division of Edge Insights, Inc.