Howell Energy Consulting January 2011 Newsletter

Energy Price Outlook

Spring! Thank heavens! The winter was tough but now that it is over it is time to assess the lay of the land and begin to plan for the next energy procurement cycle.

The Economy

The job outlook continues improve. The national unemployment rate reported for March 2011 has fallen nearly a full percent since one year ago and is down 0.2% since the beginning of the year. Good news indeed but lately economists have become concerned with the impact on the economy of rising fuel and commodity prices.

Supply

At this time last year natural gas storage was 9.2% higher than the five year average. This year natural gas storage is only 0.6% higher than the five year average. The winter has taken its toll on reserves and to add to this situation production is slowing. Reacting to skyrocketing oil prices producers have moved equipment from drilling for natural gas to oil. For the week ending April 15th Baker Hughes reports that the number of oil rigs increased by 20% while the number of natural gas rigs has declined by 9%.

Weather

The spring has a neutral impact on prices, although the occasional cold days can add a $.20/MMBtu (5%) to prices. Once the cold disappears the cold weather premium disappears.

Outlook and Buying Strategies:

While during this past March prices dropped slightly, spring prices have firmed as supply has returned to a balance with consumption and also due to an improving economy. Soon prices may increase again as traders factor in a premium for the summer and the hurricane season.

The next opportunity for softening prices may be in September as the hurricane season winds down. If the summer is not excessively hot, supply may build to the record levels seen during the past two years. A strong increase in reserves over the summer could dampen price gains due to economic growth.

Possible strategies to get through the summer include:

Think longer term to get out ahead of an economy that may begin to accelerate.
Purchase fixed products for the summer only, allowing an opportunity to view where prices may head this fall.
Return to utility service for the summer and get ready to jump into the market this fall.

To understand how these strategies apply to your business Call Howell Energy Consulting to to create a procurement plan for your organization.