The Dilemma

September 23, 2011

Natural Gas prices continue to be very competitive.

 

However…

 

This has presented a dilemma.

 

 

 

When you request pricing for an existing client,

 

Who has been participating in the deregulated market…

 

 

And

 

 

You compare the proposed price

 

vs

 

What the client has paid over the past 12 months.

 

 

Guess what???

 

 

 

The price normally is higher than what they have paid.

 

 

 

The client’s response normally is:

 

 

Why is it more?

 

 

Why can’t I play less?

 

 

 

That’s a good question,

 

 

 

Now what answer do you
want?

 

 

 

 

Let’s just stick to
the facts

 

 

 

The truth is that the natural gas market is a moving target

 

It is a commodity that is being traded 24/7

 

 

 

 

Several years ago (2008),

 

Natural gas prices shot up

 

 

Market prices were $12 – $14 a decatherm

 

Which translates into $1.20 – $1.40 a therm

 

 

That was the commodity cost to the providers

 

 

 

So consumers were even paying a higher rate

 

 

 

Since that time, prices have steadily dropped

 

 

 

You have probably seen me reference

 

That many analyst saw natural gas pricing

 

Reach a floor in

 

Late October / November 2010.

 

 

Problem is….

 

That nobody knows where the floor is…

 

 

Until you pass it

 

 

 

Well guess what??

 

 

Prices may once again be creating a floor as we speak.

 

 

The Nymex continues to drop

 

It has gone full circle over the last year

 

 

What do you mean the
last year?

 

 

It has gone full circle over the past 2 months

 

 

 

I have a friend, who
is a chiropractor,

 

He asked me what is
wrong with my neck.

 

 

I told him I have been
watching the Nymex!!!

 

 

 

The problem becomes….

 

 

There is more upside risk

 

Then there is downside risk.

 

 

Translated……

 

How much lower can prices go?

 

 

All future indications show prices going up

 

 

 

What are your options:

 

 

 

Float the market while prices continue to remain low

 

 

If you see prices starting to go up

 

You can always turn around and lock your position

 

 

There are various other options…

 

Winter locks…Lock in the price for months with the highest
usage

 

 

Basis locks….Lock in the transportation cost and float the
nymex

 

 

Anyone of these options can be used

 

To be proactive against future price spikes

 

 

 

 

Another issue:

 

 

 

We spoke in the past that natural gas prices

 

Are made up of 2 components

 

Nymex… The cost of natural gas out of the ground in Gulf of
Mexico

Basis…… The cost of transporting the gas from LA to your
local provider

 

Index…….The sum of the 2 or the base cost of the commodity
to the provider

 

 

While the Nymex prices are creating new floor space

 

The basis cost is higher than it should be

 

The result….

 

Adding a low Nymex cost

 

To a higher than normal basis cost

 

Gives you a higher overall cost

 

Then what you were paying over the last year

 

 

 

I find this all very
interesting…

 

(You have to say that
while you are rubbing your chin)

 

 

What should you do?

 

 

HBS presents all the options

 

 

We look at where the market has been

 

 

What are the future projections showing?

 

 

We look to educate our clients

 

So they have a full understanding of how the market works

 

 

We want our clients to feel comfortable

 

 

 

Knowing that they made the best decision

 

For their company

 

When all the facts were presented

 

 

 

To learn more about
deregulated energy opportunities for your business email george@hbsadvantage.com

 

Visit us on the web www.hutchinsonbusinesssolutions.com

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