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.
For
more details about this story,
click here
and here.
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.
Check out what we can do for
you!
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