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Sunday, 02 February 2020 15:47

A 200 + BCF WEATHER DRIVEN DECLINE IN NATURAL GAS STORAGE DOES NOT SEEM TO BE HAVING AN EFFECT ON NATURAL GAS FORWARD CURVES. DEPENDING IN YOUR LOCAL MARKET CONDITIONS, POWER AND GAS PRICE VOLATILITY MAY OR MAY NOT BE OVER FOR THE WINTER SEASON.

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Prompt month natural gas settled down 2.7% for the week, closing at $1.84 / MMBtu.  The 12, 24, and 36-month contracts were flat for the week at $2.16; $2.26; and $2.30 / MMBtu respectively.  This is for the liquid Henry Hub delivery point.  Expect weather driven volatility to come into your local delivery market causing price spikes in both power and gas rates.  The curve signifies a great time to lock in your retail power and gas rates for longer stretches of time.  Those customers on variable price plans will see the volatility in their unhedged power and gas prices.  Take risk off the table with the low term spread environment.  Allow your ESCO supply company to work for your business or residence, and manage market volatility with fixed price contracts for term length.  Variable rate contracts do not offer price protection (or value) in my own opinion.

New gas storage levels came out on January 30, 2020 for the week ending January 24, 2020. The overall storage level ended the week at 2,746 / MMBtu, a seasonal weather driven decrease in the system of 201 MMBtu.  We have now broken through the 3,000 technical indicator gas storage level.  Natural gas storage levels are 7.6% above the 5-year average, and 23.6% above where they were 12 months ago.  Keep in mind that this is storage in the system.  There are still ample supplies of natural gas in the ground that has yet to be tapped by producers.  Expect to see similar natural gas storage withdrawals as customers need heating fuels for their residences and businesses.  This will constrain supplies and drive prices higher as power plants compete for fuel to generate electricity at the wholesale level.

Variable rate plans are meant to be pegged to an index (keep these market movements in mind when evaluating comparable billing periods!). While pass through components such as capacity and ancillary services costs have come up, the commodity itself remains in check.  As a customer, you have the choice to decide who holds the price volatility risk.  Protect yourselves with fixed price contracts.  Those customers who elect a variable rate plan are 100% exposed to price volatility driven by weather and other market conditions.  Allow your supply company to do their job and manage the volatility by offering you a fixed price contract.

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.  Winter season is arguably the high point of wholesale natural gas and power price volatility.  This is not a risk that customers should be exposed to.

Heating Degree Days represent the average weekly temperatures netted against 65 degrees.  They are an indication of heating fuel demand.  The more heating degree days cities such as NYC display, the higher the demand for fuels such as natural gas, and the higher prices go for natural gas, and electricity.  We benchmark the weekly heating degree days against the 5-year comparable weekly statistic.  It is a great indication of price volatility that customers on variable rate supply plans expose themselves to.  The start of winter 2019 – 2020 has been a cold one relative to prior years.  If this trend continues, customers on variable rate electricity and natural gas plans will be completely unhedged to the biggest volatility driver in the market which is weather.  A review of the LTM natural gas price market will show that this time last year there was a shock in the curve, and customers on variable rate plans likely saw their commodity rates shoot up.  Allow your ESCO to manage this price risk on your behalf with fixed price electricity and natural gas supply contracts.

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