Centrica plc ("Centrica" or the "Company" or the "Group") today announced that it has entered into an agreement to sell its North American energy supply, services, and trading business, Direct Energy, to NRG Energy, Inc. ("NRG Energy") for $3.625 billion in cash (equivalent to approximately £2.85 billion) on a debt free, cash free basis (the "Transaction").
Prompt month natural gas contract saw the week trade up 5.2% and settled at $1.81 / MMBtu. The 12, 24, and 36-month contracts were also up to a lesser extent, settling the week at $2.45; $2.50; and $2.49 / MMBtu respectively. Coved 19 continues to crush demand in both markets. This is for the liquid Henry Hub delivery point. There does not appear to be any issues getting natural gas to where it needs to be which is great for market stability. 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 July 23, 2020 for the week ending July 17, 2020. Natural gas storage in the system continues to see weekly increases but to a lesser extent, which could mean that demand for natural gas is coming back. The overall storage level ended the week at 3,215 / MMBtu, an increase in the system of 37 MMBtu. Natural gas storage levels are 15.7% above the 5-year average, and 25.6% 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.
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 well into the summer season, and early data has markets warmer than historical average temperatures (elevated cooling degree days). 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.