January 2017

Hello - Please enjoy this edition of the Prospect Resources newsletter

Did You Know - How is Natural Gas Traded?

Natural gas is a commodity traded on the NYMEX (New York Mercantile Exchange), a commodity futures exchange owned and operated by CME Group of Chicago. Quotes reflect the delivery price at Henry Hub in Louisiana. 

Natural gas contracts are bought and sold in units of 10,000 MMBtu or Dth. It is quoted in U.S. dollars and cents. By volume, this is the third-largest physical commodity futures market in the world.

Natural gas pricing tends to be extremely volatile and is driven by weather-related demand. It is also impacted by the conversion of electricity generation from coal to natural gas. The recent advent of natural gas exports in its liquefied form (LNG) has little impact on current prices, but that is sure to change in the future.

Monthly future contracts can be bought 10 years into the future. Quotes can be found here, delayed by at least 10 minutes.

Gas Market Volatility - Update

While natural gas pricing continues to be relatively moderate from a historical perspective, it remains extremely volatile. The graphic below shows the monthly percentage change for both the NYMEX settle price and the Chicago Citygate NGI. As you can see, the monthly price movements are significant.  Daily volatility in the natural gas market is even greater. The changes to basis pricing (an added fee corresponding to the transportation of gas from the supplier to the utility) only add to the uncertainty that a property owner can face. The conclusion is obvious. Anyone who needs to accurately budget their energy expenditures should not be floating at the market price. It takes active management of a natural gas account to mitigate this volatility and give some peace of mind to property owners. Who is managing your natural gas? Let PRI employ its Layered Hedging strategy for you!

Limits on Commerce Commission Authority 

State commerce commissions may regulate and set rates for utilities. They do not, however, have the same kind of rate-setting authority for alternative retail electric suppliers (ARES). As such they cannot adjudicate consumer rate disputes.

The Illinois Supreme court, in Zahn v. North American Power & Gas ruled, that while the Illinois Commerce Commission licenses the alternate suppliers to operate in the state, "an ARES’s prices are a matter of contract between the ARES and its customers." As such, the determination was that the ICC should not be attempting to regulate retail rates in deregulated areas. Rather, those rates would be set by the regular market forces of supply and demand.
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Energy and the New Administration in Washington

The direction that President Trump's administration will take with regard to energy policy is no doubt still being forged. It would seem apparent, however, that there will be new underlying principles that will guide policymakers.

Regulation reform and commitment to the use of clean coal technologies are some of the promises made by the new energy plan, as a means of maximizing use of available resources and ultimately reducing energy cost to the consumer.

The energy plan posted on the White House website can be viewed here ("An America First Energy Plan" is under the Issues Menu  - You may be asked to provide a zip code).

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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