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Spring 2012 Issue 8
Welcome to Howell Energy Consulting  

Howell Energy Consulting brings you the opportunity to focus on the core mission of your business, while allowing an energy professional to create competition for your electricity and natural gas requirements through managed procurement.

Howell Energy Consulting is a licensed energy professional in Connecticut and Massachusetts. For more information :

phone: 860-205-3863
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Energy Price Outlook  



What a difference a year makes! Last March we were busy shoveling snow off the roofs of our businesses and homes, this year we are mowing lawns and having dinner on backyard decks ! This year's first quarter had 22% less heating requirements than last year. In the fall I had said that the purchasing environment was lining up in the buyer's favor, well the warm winter has added an exclamation point to that statement.



The Economy
The economy appears to be generally moving in a positive direction. The unemployment rate is now 8.2%, down 1.8% from its October 2009 peak,  Gross domestic product continues to grow and the stock market is improving.  The economic news is now more favorable than negative and even the European economic crisis seems to be subsiding.  Nothing though has changed in the speed of this recovery and significant sectors, like housing continue to be sluggish. More of an election year issue than an economic issue, oil prices have been driven higher consequence of of higher worldwide economic growth and international concerns. 

After this warm winter, a record amount of natural gas which was stored for use for this past winter remains in the ground. In fact, the average storage volume for March over the years 1994 - 2011 was 86% lower than 2012.  The consequence has been to drive natural gas prices lower and to reduce the number of rigs drilling for natural gas. Baker-Hughes, a drilling service company, maintains a database of the number of rigs drilling for oil and natural gas.  For the week ending March 23rd Baker Hughes reported that there were 25% less rigs drilling for natural gas this year compared to last year.  As a side note the number of rigs drilling for oil is up 54%. All of this is good news for consumers but for the longer term implications read the article on "What do Hog Prices and Natural Gas Prices have in Common?"



The great news about the Spring is it is a weather neutral season. The cold weather is behind us and the warm weather is in front of us. Unless the summer is extremely hot, weather will not play a large issue until the Hurricane Season.
Outlook and Buying Strategies:
The huge glut of natural gas trumps the impact of the economy and the reduction in drilling. Until the surplus is consumed which is not likely until we experience another cold winter, a positive outlook continues for buyers into next winter.  The expectation of Howell Energy Consulting for the next twelve months is for natural gas and electric prices to remain flat. Some declines may yet occur but  these are expected to be modest.  With that said the purchasing strategies remain the same as those discussed in the fall with one addition.
Possible strategies include:

  • Weak current conditions mean that the near term energy prices are affected more than longer term prices. Buyers in the market today can lock in very competitive pricing.


  • Buyers with contract terms that end in 2012 may want to test the market now to set a baseline price.  Have a price in mind and  if the market can get to your price you should execute a power or natural gas contract. 
  • For customers comparing themselves to monthly utility prices, an index product that tracks the market may work for now. An index price allows you to take advantage of a weak short term market and fix   a prices as the forward market begins to strengthen.


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

With over 30 years in the energy industry and 13 years of experience in the deregulated energy business, Derek Howell's expertise covers the broad expanse of the electricity and natural gas markets.  


Prior to the founding of Howell Energy Consulting. Mr. Howell  was Direct Energy's Director of Retail Pricing for  New England and New York regions. 


In This Issue
Energy Price Outlook
Natural Gas Storage
What do Hog Prices and Natural Gas Prices have in Common?

Natural Gas Storage is at an all time high


At the end of the 2011-2012 winter, natural gas remaining in storage was 47% higher than at this time last year, 86% higher than the 1994 - 2011 average  and not surprisingly at an all time record.  A warm winter and high production have prevented normal depletion rates. This is great for now but read the on for how this impacts future prices.  

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What do Hog Prices and Natural Gas Prices have in Common?



Since the development of the Marcellus Shale natural gas fields, gas supply has expanded rapidly.   Add a warm winter into the mix and natural gas supply gets backed up into storage. Consequently electric and natural gas prices have dropped.  In fact power prices are over 20% lower than they were in October 2011. All this is good for now but what are the implications for the longer term? Arthur A. Harlow published an article in Journal of Farm economics, titled " The Hog Cycle and the Cobweb Theorem".  Harlow had noticed that the hog market showed a four year lag in response to price signals. When prices increased it would take fours years to increase the number of hogs that could be brought to market.  The natural gas market works in a very similar fashion. 


To produce natural gas, permits have to be requested , equipment has to be shipped and the infrastructure to distribute the gas to the pipeline system needs to be built out.  All of this takes some time which means when producers are being given a price signal to drill, it is going to be some time before the actual production can start. Likewise production doesn't end immediately either. If you are the

company with rigs in the ground you are hoping you can outlast your competitors so you can take advantage of rising prices when they return. That said even if you are one of the first producers out, it takes some time to cap and remove equipment from drilling sites.  As a consequence supply lags prices and it takes time for the balance to be reestablished. 


As noted in the supply portion of the overview 

production is already slowing but it will take a cold winter to work off the surplus.   Producers though are already moving equipment towards oil production.  As noted in the supply portion of the overview, the number of rigs dedicated to natural gas is down 25% from last year.


Add a wild card and the trend towards higher prices may speed up. This past January the EPA was set to put its Mercury and Air Toxins standards into effect.  Producers are suing in court to slow down or eliminate the rules. When and if the rules do go into effect significant amounts of coal generation will be mothballed and replaced with natural gas generation in the years 2015 and forward which will tighten the natural gas market.


Long story short the surplus today creates the conditions for a future shortage.


Howell Energy Consulting is monitoring this dynamic to help you plan forward.


















To learn more about Howell Energy Consulting Go to:
Derek Howell
Howell EnergyConsulting LLC