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Tag: strategic procurement

Independence Day: The Natural Gas Market

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The only thing that could make 2020 more unbelievable would be massive alien saucers hovering over major US cities. COVID-19 continues to linger, election rhetoric is heating up, and NYMEX Natural Gas just broke the record for its LOWEST MONTHLY PRICE SETTLEMENT IN 25 YEARS. With the July contract settling at $1.495/MMBtu, preconceived notions about this market have been shattered, and we face the rest of 2020 with a high degree of uncertainty. Can Will Smith swoop in and end this alien-like hold the bearish fundamentals have on this market? To be determined, but what is certain is that this natural gas market is sending up fireworks of the likes never seen.

2020 was supposed to be the year of growth for all things natural gas. Growth expected on the demand side from electric power burn, liquefied natural gas (LNG) exportation, and pipeline exports to Mexico. Growth in production expected to make up for the new demand. Rather, what we have seen is a COVID-19 induced, massive decline in nearly every fundamental. LNG is down 70% from projections, production down 10% and industrial demand down almost 20% has given us a slowly balancing but still over-supplied market. This supply glut hangs over the global natural gas market like an ominous flying saucer and poses a serious financial risk to all that dare oppose it.

So, what of this pricing record? Last week we saw a massive injection of 120 BCF of natural gas into storage, exceeding expectations and all previous norms. This event, coupled with the fundamentals discussed, and moderating weather forecasts last week, pushed the NYMEX July contract to a low of $1.432 before settling last Friday at $1.495. This is the lowest settlement we have seen since the August 1995 contract that settled at $1.49 (a year before the cinematic classic we call Independence Day was released in theaters). These are price levels previously believed unreachable in our modern market. This bearish confluence of events has moderated, and we have now seen a rebound in the August contract to $1.70 on forecasts of a top 5 hottest July.

In many ways, the NYMEX Natural Gas market is a victim of its own success. The ability to quickly and cheaply produce natural gas has pushed producers to sell at rock-bottom prices. These market prices are unsustainable for long periods of time without irrational factors at play, but there has yet to be much rationality in the year 2020. In a way, maybe the crude 1990’s cinematography and plot line of aliens coming to harvest the earth for its natural resources is a believable analogy for this natural gas market. Will the market shake out by winter? We have our predictions, but for now, we are left waiting for the rest of this market/movie to unfold.

Confidential: Choice Energy Services Retail, LP.

Light at the End of the Tunnel

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By: Chris Amstutz

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Opinions are circulating that 2020 has been the worst year ever. Extreme maybe, but the roaring 20’s is certainly off to a rough start for the country (and natural gas price outlooks). The good news? The light at the end of the tunnel is in sight. For two months now we have been in the Tunnel of Terror (as we mentioned in our last blog), and only now are a few trends popping up. COVID-19 restrictions are easing, allowing people to emerge from their Netflix/Hulu/HBO binging solitude. This is allowing for a clearer outlook on the fundamentals affecting the NYMEX natural gas market. Are we out of the tunnel of forecasting despair yet? Certainly not. Expect more records to be broken before we reach the end of this madness. More good news? We are nearing an advantageous time to save your business money through the strategic management of your energy procurement.

Looking Back into the Darkness

Stay at home orders may be boring, but following the markets has not been. The volatility witnessed in the last 2 months has been unlike anything seen in our lifetimes. Here are some of the records that have been broken pertaining to the natural gas market:

  • Record low daily temperatures for half of the U.S. on May 9th.
  • The WTI May oil contract went negative on April 20th for a -$37.63 settlement.
  • Unemployment sits at 14% nationally, and the Fed Chairman warns this could rise to 25%.
  • Several projections have the natural gas storage level breaking the record high of 4,047 billion cubic feet (BCF) by November.
  • The streak of 76 trading days of NYMEX prompt under $2 was broken on May 5th but has since fallen back below the mark.

Looking Forward for the Light

The glimmer of freedom and summer bliss has been revealed to many recently. As we learn more about COVID-19, the implications ripple through energy market fundamentals and ultimately prices. The dark tunnel of uncertainty has become a little brighter. Here are some ongoing trends we expect will continue to affect the natural gas market:

  • All but 5 states (NY, NJ, CT, MI and MA) have begun some sort of reopening measure. It may be 2 more weeks until any state has fully opened all businesses.
  • Non-weather demand for natural gas has fallen. Industrial demand is expected to slowly recover as the economy picks up, but it may not be until 2021 for exports to recover. Liquified Natural Gas exportation (LNG) has led the way with only 60% of capacity utilized in May, falling to potentially 45% by end of summer.
  • Production could fall as much as 5% in 2020. This is a substantial drop but has recently been less than the fall in demand we have seen, maintaining the short-term bearish market. A recovery in oil prices could keep this loss of production from being fully realized.

The adage of “volatility creates opportunity” is certainly at play here. Any business that can look forward for the light at the end of this virus-induced tunnel will benefit from an experienced energy market consultant. The twists and turns we have seen recently have been extreme and gone are the days of passive procurement management. Through Choice Energy Management’s analysis of market fundamentals and historical trends, even the darkest of tunnels can be illuminated. While uncertainty still abounds in the NYMEX Natural Gas Market, feel free to reach out to a Choice! consultant today regarding your business’s energy management options.

Confidential: Choice Energy Services Retail, LP.

Strategery

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By: Matthew Mattingly

I often get asked what separates Choice! Energy Management from our competition. Usually I respond with the word “Strategery” to describe our services. Not only does it typically get a smirk from those that remember the classic Bush v Gore SNL skit, but it gets people to quickly associate Choice with a key service offering: STRATEGIC PROCUREMENT. While electricity and natural gas procurement have been the backbone of energy consulting since deregulation began in the 1990s, not every consultant is strategic with their energy procurement recommendations. Countless times I have walked into a prospective client’s office, and been told that their previous consultant only provided them with the minimal effort process of procuring 30-60 days prior to contract expiration. What is strategic about that?

The Choice Way

At its core, the procurement process looks similar for many energy consulting companies. The analyzing of a client’s usage is followed by obtaining and verifying bids, and then reviewing and executing the procurement contract. However, many miss the first, most important step of the TIMING of the RFP. This is where we at Choice! Energy Management differentiate ourselves from the competition. We truly take the time to understand our client’s risk tolerance, financial goals, and objectives, and then develop a procurement plan around this profile. Once that Energy Action Plan is established with our clients, we then evaluate each energy market area, determining opportunities that may exist. The right timing window in certain market areas can be as razor thin as vote counts in Florida, but our market experience ensures that no recounts are needed after execution. This allows us to guide our clients through each purchase decision, and the client becomes a price setter and not a price taker.

Detailed Market Analysis

The analysts at Choice pride themselves on the insight and value provided to clients. An example of this analysis has been our ongoing work with clients in Texas. The Texas electricity market has changed a lot over the last couple of years, sort of like the GOP. Coal retirements, West Texas demand growth, delayed natural gas generation projects, and renewable generation growth have resulted in much tighter reserve margins causing dramatic price movements in the ERCOT market. However, that doesn’t mean that opportunities do not exist in this market area. Through constant monitoring of forward curves provided by our sister company, EOX Live, our procurement team has utilized the backwardation that currently exists in the ERCOT markets to our clients’ advantage. With most of the reserve margin fears focused on 2019 and 2020, wholesale electricity curves are trading at a discount in the extended curve when compared to the prompt 2020 calendar strip (see chart below); thus, giving clients attractive contracts in 2021 and beyond. Many of our clients are taking advantage, and are thankful of our team presenting options, even if their current contract is not expiring anytime soon. Many times our clients are beating their current contract, and are also gaining budget certainty and price protection.

Data: EOX LIVE
Graph: Choice! Energy Management via ProphetX Platform

If your energy consultant’s procurement decisions have a consistent pattern of waiting until 30 days prior to contract expiration to execute, then it might be time to look at other consulting options. Our team would love the opportunity to present to you our full energy management program, centered on STRATEGIC PROCUREMENT. Don’t get fooled by the same lack of procurement service. As our great, 43rd President once said…… “Fool me once, shame on…shame on you. Fool me — you can’t get fooled again.”

Confidential: Choice Energy Services Retail, LP.