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Sunday, 31 May 2020 12:14


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Prompt month natural gas shifted to July and settled the trading week up 6.8% at $1.85 / MMBtu.  The 12, 24, and 36-month contracts were up to a lesser extent, settling the week at $2.44; $2.51; and $2.49          / MMBtu respectively.  This is for the liquid Henry Hub delivery point.  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 May 28, 2020 for the week ending May 22, 2020. Natural gas storage in the system continues to see weekly increases.  Expect more weekly increases to the storage system during this time of warmer temperatures and lower usage.  The overall storage level ended the week at 2,612 / MMBtu, an increase in the system of 109 MMBtu.  Natural gas storage levels are 19.3% above the 5-year average, and 42.4% 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.

Variable rate plans are meant to be pegged to an index that are not necessary tied to the prompt month gas trading levels (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.  Summer season brings the potential for elevated price volatility in wholesale and retail natural gas and power markets.  This is not a risk that customers should be exposed to.

We are now entering into the shoulder season.  Expect natural gas inventories to climb as the result of weak demand until summer temperatures begin to elevate.  Air conditioning technologies will increase demand, and cause elevated levels of price volatility throughout deregulated markets beginning June.  Allow your ESCO to manage this price risk on your behalf with fixed price electricity and natural gas supply contracts.

Next week we will begin tracking the weekly cooling degree days.  Weather continues to be a significant driver of wholesale and retail electricity and natural gas supply.  Those who have not yet locked their rate should evaluate their fixed price option.  Keep price volatility risk with your ESCO where it belongs.

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Chip Wilkinson

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