October 2016

Please enjoy this edition of the Prospect Resources newsletter

Did You Know - How does Load Factor Affect Electricity Pricing?

Many consumers do not realize the role that their "load factor" plays in the price that they pay for electricity. In fact, it can greatly impact the cost of each kWh.

The load factor can be loosely defined as the relationship between how much power is used across a time period and the maximum that would be used if power were consumed continuously during a period of peak demand.

Generally speaking, a high load factor will result in more favorable electricity pricing. A very low load factor results in high pricing, as the maximum demand will be distributed across a relatively small number of kWh.

There are strategies available to improve a property's load factor. On the one hand, the property can look to reduce demand by distributing the load across different periods. At the same time, the property can look for ways to optimize power consumption while keeping demand stable.

A very basic description of load factor and its associated calculations can be found here.

How Much of a Premium Do We Pay for Renewable Energy?

The Institute for Energy Research recently published a study exploring the cost of wind and solar power. The study found that the electricity from these renewable sources will typically cost 2.5 to 5 times more than electricity from existing coal and nuclear power.

The study factors in the costs incurred as a result of the intermittent nature of these energy sources, as well as the resulting balancing requirements that arise. Consequently, as natural gas makes power generation less expensive, at least in the short term, closure of existing coal and nuclear plants will be a contributing factor to a rise in prices as more renewables are added to the grid system.
For more details about this study, click here.

LNG (Liquid Natural Gas) Highlights for 2017

A huge development in 2016 for the natural gas market is that the U.S. has begun to export gas via tanker in its liquid form. This enables exports to most parts of the world, wherever economically viable. This part of the U.S. gas industry is still in its infancy but is set to grow significantly in 2017. The increase in natural gas prices internationally leaves the industry wondering how prices will be impacted domestically.
  • In 2017, the United States will be a net exporter of natural gas.
  • For natural gas to be shipped by tanker, as opposed to by pipeline, it needs to be liquefied. That is done by exposing it to temperatures of minus 260F.
  • In 2017, the capacity to export LNG is expected to more than double, to 3.2 billion cubic feet per day. Consequently, 8-10 percent of total U.S. natural gas production could be exported. 
  • Most of the tanker shipments in 2017 will be going to Central and South America, but, due to lower prices, shipments to Asia can be expected to begin as well.
  • The newly expanded Panama Canal, opened in June, is now wide enough to accommodate most LNG tankers. This will significantly lower trip time and cost to potential Asia customers like Japan and China. This could shorten each trip by up to two weeks, saving millions of dollars in transportation costs.
  • Turkey took a shipment of U.S. gas in September. This could heat up competition in the European markets. Currently Russia provides 40% of Europe's natural gas, and Turkey is their third largest customer.

Prospect Resources Inc. (PRI) is a firm that specializes in managing energy procurement (gas and electricity) for medium and large commercial and industrial clients.

The only constant in the energy markets over the past 15 years is price volatility. This reality turns energy procurement into a very risky business.  

PRI's Layered Hedging strategy is a proven alternative.
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