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Saturday, 02 February 2019 23:22

LAST WEEK’S EXTREME COLD WEATHER LEAD TO TRIPLE DIGIT (NATURAL GAS) STORAGE WITHDRAWALS, SPIKES IN HEATING DEGREE DAYS, AND WIDESPREAD POWER AND GAS BASIS PRICE VOLATILITY. BOTH UN-HEDGED ESCO PROVIDERS AND VARIABLE RATE CUSTOMERS WILL FEEL THE PAIN

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The natural gas (Henry Hub) prompt month contract ended the week down 14%, settling at $2.73 / MMBtu.  The 12, 24, and 36-month contracts were also down, settling at $2.84; $2.76; and $2.71 / MMBtu respectively.  Keep in mind that the above gas prices are for the benchmark Henry Hub Index.  Gas basis differentials saw significant increases in markets where gas transportation infrastructure was not able to get gas to where it was needed most.  The increase in gas basis often translates to increases in the price for natural gas in constrained markets, and that correlates directly to extreme wholesale power price volatility.  The only way to effectively hedge this price volatility is by using fixed price residential and commercial power and natural gas products.

The forward natural gas curve continues to display a well-established contango shape, indicating buying opportunities for those customers electing to lock in rates for longer terms (both power and gas).  As seen in the YTD Henry Hub Gas price chart, spreads are getting wider between the prompt month and term contracts.  Taking fixed price term contracts for both power and gas continues to be prudent risk management strategy for both commercial and residential customers.

New gas storage levels came out on January 31, 2019 for the week ending January 25, 2019, and showed a big weather driven drawdown in the system. The overall storage level ended the week at 2,197 / MMBtu, a net weekly seasonal driven decline in the system of 173 MMBtu.  Natural gas storage levels are 13.0% below the 5-year average, and 0.6% below where they were 12 months ago.  Keep in mind that this is storage in the system.  As you can see from the charts, the storage levels are markedly below historical averages, but there are still ample supplies of natural gas in the ground that has yet to be tapped by producers. 

Variable rate plans are meant to be pegged to an index (keep these market movements in mind when evaluating comparable billing periods!). The low-price environment continues to present a great opportunity for commercial and residential customers to lock in power and gas rate plans for the next 12-month period and beyond.

Attractive opportunities are in the market for customers to hedge out price volatility.  Keep the risk where it belongs, with your well-seasoned energy supply partner.  The heating degree day bars continue to show that winter 2018 has been colder vs comparable prior periods.  Increased demand for heating fuels such as natural gas drive both wholesale and retail power and gas price volatility.

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