- Power & Gas Prices Track Together: Power prices track closely with natural gas prices and gas fundamentals are used as leading indicators to identify power price trends. Gas prices for 2013 were +35% over previous year.
- Weather Matters: Weather continues to be one of the most important factors influencing both energy demand and pricing. Winter weather drove both to new highs. You may want to secure some of your summer and winter electricity and gas supply prices to avoid price spikes.
- Plan for the Summer: Preliminary National Weather Service Summer forecast is calling for a hot summer along the East Coast and West Coast. Hot weather also expected for the South, with normal temperatures for the Midwest. Note that although the Midwest forecast is currently calling for normal temperatures you should consider planning for unexpected volatility.
- Natural Gas Storage Inventories are at 11 Year Lows: Record cold has reduced gas storage to 11 year lows and we will need to inject a record 2,600Bcf from April through October in order to return storage to at least 3,500 Bcf for the upcoming winter. Regional inventories are all below 5 year minimum levels and inventories in the Great Lakes region are low and facing continued heating demand in early April, which could exacerbate basis volatility in near term cash markets. The storage deficit/surplus ratio on a year-over-year basis has a high correlation to the 12-month gas strip and, until it begins to narrow, higher prices will likely be required to ensure enough gas injections into storage on a weekly basis.
- Coal’s Potential Effect on Next Winter Prices: Coal plants may displace some gas units until the storage deficit is reduced but coal inventories for power generation are extremely low this spring as well due to high winter demand and rail delivery issues. If coal units struggle to rebuild inventories and storage is below 3,600 Bcf on November 1st, there could be increased chances for volatile prices next winter too. Spring is a great time to secure winter prices.
- Winter’s Painful Lesson about Risk Management: This winter’s volatility has been a painful reminder that budget stability and price protection are key building blocks for an effective energy procurement strategy. With increased demand, pending coal retirements and winter pipeline limitations, future peak seasons may be ripe for more unexpected volatility. A stable supplier and a strategic energy plan can help you take advantage of market opportunities and mitigate the effect of price spikes.
