Buying Natural Gas Wholesale

Government boards regulate the utility market price.  Although, the state utility regulator is required to pass market savings onto the consumer, local providers buy natural gas on the wholesale market and bill their customers’ retail. We put our clients in a wholesale position because brokers/marketers have the flexibility to buy gas when rates are lower and pass the savings onto their clients.

Comparing and deciding among the various offers.

In the new deregulated industry, buying natural gas is like getting a home loan. You can select between:

• Contract terms of 1 to 5 years
• Lock in at a fixed rate for an extended period of time
• Choose variable rates and rely on an experienced gas manager to get you the lowest price

Why switch?

Most consumers switch to brokers/marketers to save money.  Together you can determine your comfort level.

Ø    Security – if the utility price makes you feel more secure, choose an option that offers a percentage less than the utility for guaranteed savings.

Ø    Lowest Price – if you want to have a knowledgeable gas company managing your gas supply, select the variable rate and let a gas supplier manage it for you.

Ø    Fixed Price – if you think prices are going to continue to rise and you want to be sure of your bills, choose a fixed price.

Regulated rates are not fixed rates.

Each province or state has an agency that regulates utility rates. Utilities can and do apply changes to rates.  They are not allowed to offer fixed contracts. By signing up with an energy marketer you can avoid these unexpected rate changes. We competitively tender your natural gas needs to deregulated natural gas marketers.

If you choose to buy from a gas broker/ marketer, your gas service won’t change.

You will continue to receive a bill from your distributing utility authority indicating their regulated delivery charge (about half of your bill) and a gas supply charge that goes to the gas supplier. If you also have rental equipment or a service contract, these will appear on your bill, as usual.

It’s important to remember these cost splits when comparing prices. The suppliers, brokers and/or marketers are offering rates on only half of your bill. As previously stated, the distribution charge and monthly service charge is fixed.  It is strictly regulated by an Energy Board or Public Service Commission. As a result, when a promotional message claims a 10% saving, it is ONLY referring to that 10% controlled by all energy brokers.

You do the math.

To qualify in the deregulated market, your company must spend a minimum of $5,000.00/ month ($60,000.00/year) on natural gas. Half of that monthly fee ($2,500.00) is a regulated transportation and delivery charge. The remainder is the gas supply charge.

A gas marketer offering a 10% savings is offering a savings of $250.00/ month, 10% of the $2,500.00 gas supply charge. Your annual savings would be $3,000.00.

Saving is parity to how much you spend. The above example applies only to minimum qualifications.  The more you use, the more you save.

Hutchinson Business Solutions (HBS) is an independent energy management consultant. We have been providing deregulated energy solutions to our clients for over 10 years. HBS clients are saving from 10% to 20% on their natural gas supply bills.

Large market swings offer you big savings.

If you have been following market prices for natural gas, over the past couple of years, you have probably noticed the large market swings. ie: In 2008, PSEG prices ranged from $1.07 per therm in February to $1.64 per therm in July. In 2009, prices dropped and we saw $.889 cents per therm in January with a low of $.496 cents a therm in September.  With so much market fluctuation, we have been advising our clients to float their accounts, based on the market index.  In this way, our clients can save anywhere between, 8% up to 20%, depending on whom their local provider is.

Choosing to float the market index does not preclude you “locking in” on a fixed price at any time during the term of the contract. Conversely, if you choose a fixed price, you are unable to change to a float when market prices go down.

Want to learn more about opportunities to save in the deregulated natural gas market email george@hbsadvantage.com or call 856-857-1230.

Visit us on the web www.hutchinsonbusinesssolutions.com

Saving in the Deregulated Market

The Deregulated Electricity Market will SAVE your company money…but only if YOU act.

Just as deregulating the airline industry resulted in more competition and lower airfares, and the deregulation of the telephone industry resulted in slashing service costs, the deregulation of the nation’s electric utilities will result in utility companies competing for your business with better service and lower prices. While it’s not yet truly practical for the average household to utilize this deregulated environment, the “mid-size” to “large” electricity consumers (small to large businesses) are now able to drastically cut their electricity costs through “aggregators” (companies that buy large volumes of electricity at wholesale rates on behalf of their clients).

A Brief History of
Utility Deregulation

Before deregulation, you were ‘held hostage’ by one telephone company monopoly. You had to pay the rates that they decided were ‘fair’ (though they had to receive approval from the government). The phone company owned the wires, switches, even your actual phone which you had to rent from the phone company (you were not allowed to own a phone of your choice and connect it to “their” system.

Then the phone company monopoly was broken up by the U.S. Justice Department and the FTC, and allowed the entry of competition. The competition began with long distance phone calls, and companies like MCI and Sprint set up their own switching systems and wires and leased the use of the old phone company’s lines (this latter part was mandated by government decree to insure competition). Long distance rates started dropping, first by a little, then drastically. Today a long-distance call can cost as little as a penny (sometimes even less), whereas that same phone call 30 years ago would have cost 20 or 30 cents (or more) per minute. The End Result? Consumers of telephone service now have multiple choices for service providers, and the cost of telephone services (especially long distance, but also local service) have dropped dramatically, saving consumers tens of millions of dollars.

THE SAME SITUATION IS OCCURING TODAY WITH
ANOTHER UTILITY: THE ELECTRIC COMPANY.

In the interest of providing the public with the lowest possible rates and a selection of service options, the U.S. electric utility industry is now in the process of being deregulated. This allows power plants to compete for your business, and as we all know, competition breeds savings for consumers. It also changes the electrical utility industry into two distinct types of services: The companies that transmit power from the electrical generating station to your home or business (they own the poles, transformers, wires, etc…these are called “the distributors”); and the companies who actually operate power plants (“the generators”) and feed electricity into the distributors’ power grids. Of course, some companies are both generators and distributors. Still, deregulation allows you to choose who actually generates the power you consume, and you are free to choose the company that generates electricity in the most cost-effective manner and therefore can sell it to you at the best price.

In 1978, Congress passed the Public Utility Regulatory Policies Act which laid the groundwork for deregulation and competition by opening wholesale power markets to nonutility producers of electricity. Congress voted to promote greater competition in the bulk power market with the passage of the Energy Policy Act of 1992. The Federal Energy Regulatory Commission (FERC) implemented the intent of the Act in 1996 with Orders 888 and 889, with the stated objective to “remove impediments to competition in wholesale trade and to bring more efficient, lower cost power to the Nation’s electricity customers.” The FERC orders required open and equal access to jurisdictional utilities’ transmission lines for all electricity producers, thus facilitating the States’ restructuring of the electric power industry to allow customers direct access to retail power generation.

As a result of the Federal and State initiatives, the electric power industry is transitioning from highly regulated, local monopolies which provided their customers with a total package of all electric services and moving towards competitive companies that provide the electricity while utilities continue to provide transmission or distribution services. States are moving away from regulations that set rates for electricity and toward oversight of an increasingly deregulated industry in which prices are determined by competitive markets. (source: United States Department of Energy)

So how do you get electricity from “Power Company A” when your existing power company is “Power Company Z”?  Envision this example: Suppose your town is served by “Power Company Z”…this is the company that owns and maintains all the wires in your town, and they also happen to have a power generating station as well. This power company also is connected via larger regional or national power grids to 3 other power generating companies (let’s call them “Generator A, B, and C”). 25% of the power users in your town buy their power from Generator A, 25% from Generator B, 25% from Generator C, and the remaining 25% continue to buy from the distributing company “Power Company Z”. If you are one of the 25% that decides to buy your power from “Generator A”, then your distributor “Power Company Z” is required to buy 25% of their overall power from Generator A, 25% from Generator B, and 25% from Generator C. That means that the actual “juice” delivered to your business at any given moment could actually be a combination of electricity from up to 4 different providers, but the end result is the same…YOU, the CONSUMER, dictates which power company provides your share of the total power distributed and used, and you pay for your energy at Power Company A’s rates.

Of course it’s entirely possible that a power distributor has no actual power generating facility, OR that everybody in their service area chooses to buy their power from a source OTHER than the distributing company. The distributing company can not be expected to maintain the poles, towers, lines, transformers, etc. for nothing. Under the new deregulated industry, you will in effect receive two bills: One to pay for the actual amount of electricity used, and another for the delivery of the energy to your business. In actuality, your monthly power bill is consolidated into one payment, but it’s easy to see how much you are paying for electricity and how much for delivery.

In the end the competition between power generating companies will lower your bill by 15 to 20%, based on the experience of electricity users in states where deregulation has already been in place for several years. In the near future this competition will also allow you to make significant social and environmental choices. You may choose, for example, to obtain your electricity from a generating company that produces electricity at a slightly lower level of savings, but uses a cleaner fuel source than another generating company. You might even choose to take a firm environmental stand of receiving very little in savings but purchasing your electricity only from a very “green” power source, such as a producer who uses hydro, solar or wind turbines to generate electricity.

In the past, you could only buy electricity from your local utility, at the rates they set. Today, you have the freedom to buy from a variety of utilities that compete on price and quality for your business.

Deciphering the US Natural Gas Market

Posted on Oct. 16, 2009

By Allen Brooks

 

In the last six weeks natural gas futures prices have jumped from a modern day low to nearly $5 per thousand cubic foot (Mcf) as commodity traders and investors started to cover their short positions in this fuel as the days moved closer to the beginning of the winter heating season. The jump in the gas price ends what has been an extended price slide that started back in summer of 2008 when prices were in excess of $13 per Mcf and early signs of the developing global recession emerged.

The traders and investors who have been covering their negative bets on natural gas prices have been motivated by signs the nascent U.S. economic recovery is gathering strength, especially among sectors such as automobiles and home construction that are large consumers of natural gas and its components as feedstocks for petrochemical materials. Additionally, there was the realization that the ratio of crude oil to natural gas prices, which at one point this summer stood at 27:1 (27.08) in contrast to the inherent energy- value ratio of 6:1, was way out of line historically and certainly unsustainable.

At the start of 2009, the oil-to-gas price ratio stood at slightly under 8:1 (7.94). It subsequently dropped in early January to the low so far for the year of 7:1 (6.79). Since that point the ratio has climbed steadily, reaching its peak on September 3rd. After falling to a recent low of 13.67, the ratio has bounced around due to volatility in both crude oil and natural gas prices, but it seems to be locked into a range of 14 to 15:1. The big question is with winter energy demand about to arrive will cold temperatures drive natural gas prices higher while at the same time crude oil prices remain stable, or possibly weaken further, given the continuing sluggish economic recovery?

Natural Gas Is Historically Cheap Even After Recovery; sources: EIA, PPHB

 When we look at the ratio of crude oil to natural gas prices for the past 15 years, it is interesting to note how the ratio has become more volatile and higher in recent years following almost a dozen years of a relatively stable relationship fluctuating around a 7:1 ratio as shown by the dark blue line from 1994 up until 2006 on the accompanying chart. The most recent years have demonstrated considerably greater price volatility between the two energy fuels. It appears the ratio averaged closer to 11:1 from 2006 through 2008. Volatility in the ratio has exploded in 2009. We have marked the low, high and current ratios with small red lines. It was this volatility and the extreme undervalued nature of natural gas that enticed more and more investors and traders into the commodity trade of the decade, which was to buy natural gas futures while at the same time selling crude oil futures. For significant parts of this year that trade didn’t work, but in recent weeks it has. Part of the success of the trade has been the calendar working against commodity traders who earlier in the year had sold natural gas futures with the expectation that gas prices would continue to fall. If they sold them early enough in the year, then they had profits locked in when natural gas prices started to climb. As time passes, bringing the start of the winter heating demand season closer, the impetus for higher natural gas prices strengthens. As a result, these commodity traders are now covering their short positions by buying near-month natural gas futures adding upward pressure to the gas price.

 If one looks at the current prices for physical deliveries of natural gas, there is almost a $1 spread between them and the current November futures price. If we average all the physical gas price points as of October 8th, contained in the Enerfax Daily schedule, it comes to $3.98 per Mcf. This is when the November natural gas futures price traded for $4.96, or a spread of $0.98. This spread is truly reflective of the near-term oversupply situation for natural gas and the optimistic demand outlook associated with the futures price.

 The nearly 100 percent increase in natural gas prices since the beginning of September seems counter-intuitive given the industry’s fundamentals. Natural gas storage facilities and pipelines are nearly all at full capacity forcing gas producers to involuntarily shut-in some of their current production. In other words, near-term industry fundamentals suggest the market should be experiencing weaker natural gas prices, which is consistent with the physical gas prices. On the other hand, the intermediate and longer term outlooks for natural gas demand point to higher prices in the future.

 The brighter over-the-horizon outlook reflects a universal belief that industrial demand for natural gas will recover with the economy and the recent growth in gas production volumes will slow and eventually reverse as the impact of the significant cutback in gas-focused drilling takes its toll on output.

 

Rigs Drilling For Gas Have Been Cut In Half; sources: Baker Hughes, PPHB

 From the peak in natural gas drilling activity, the gas-oriented rig count has been cut by more than half. In recent weeks the number of rigs drilling for natural gas has begun to rise. It is this rig count increase in the face of an essentially stable natural gas production level that has investors, commodity traders and industry people puzzled. While a simple graph of onshore natural gas production is showing a decline since late last year, overall gas production has remained relatively flat for the past nine months as production from the Gulf of Mexico has risen to offset the decline in onshore gas production.

 After dropping due to Hurricane Ike last September, Gulf of Mexico natural gas production has recovered and is now above the declining trend line that extends back to the start of 2005. In fact, current gas production is back to where it was at the start of the summer of 2008. The recovery and subsequent production growth of offshore natural gas helps explain why total U.S gas production has remained healthy in the face of weak prices for most of this year.

 What continues to be absent from the dynamics of the natural gas market is a sustained pickup in industrial gas demand. Increased heating-related gas demand is inevitable as winter arrives. The issue will be the amount of heating demand increase if other economically-sensitive gas demand remains dormant. A recent forecast by Matt Rogers of Commodity Weather Group suggests that the U.S. Northeast may experience its coldest winter in a decade due to the development of a weak El Niño in the southern Pacific Ocean region. Mr. Rogers point is that 75 percent of the time a weak El Niño develops, colder than normal temperatures are felt in this region of the country. Of course, there is a 25 percent chance that it won’t develop.

 When an El Niño develops, which it does periodically, the path of the upper atmosphere’s jet stream across North America is altered. Typically the alteration involves the jet stream dipping lower on the continent, i.e., shifting from Canada down into the United States, which allows Arctic cold weather to move further south than normally and into the Midwest and Northeast regions of the country. The challenge with predicting this jet stream shift is whether it becomes a more permanent shift during the winter months or only shifts occasionally.

 Even the Farmers’ Almanac is calling for a colder winter than in recent years for at least two-thirds of the nation. Importantly, that means more periods of bitter cold weather for two of the major populous regions of the U.S. That should boost natural gas demand. The one naysayer seems to be the Energy Information Administration (EIA) that is calling for heating bills this winter to be about 8 percent lower than last winter due to both milder temperatures and lower oil and gas prices. The EIA says it expects winter temperatures to average 1 percent warmer than last year – a sharp contrast to the independent weather forecasters. Maybe their forecast is tied to their view about the role of global warming. The real problem for the natural gas industry is that it really needs a recovery in industrial gas demand to help smooth out the industry’s supply/demand trends, and the latest government economic statistics suggest a mixed bag in that regard.

 So far this year, natural gas prices have fallen from $6 per Mcf at the start to a recent low of $2.50 before rallying back to $5 in recent days. These prices are a far cry from the $13-$14 per Mcf prices achieved in the halcyon days of the summer of 2008. The extended price decline, while partially explained by the fall in industrial gas demand, has largely been attributed to continued over-production of natural gas from the industry’s highly successful gas-shale drilling efforts that are spreading across the country. The growth in the past several years of natural gas production associated with these successful gas-shale developments reversed an eroding production profile for the industry that had existed for decades. The questions facing the industry now are whether gas-shale production will eventually overwhelm traditional natural gas drilling and production efforts and whether it is possible that the U.S. becomes a net gas exporter at some date in the future.

 To help arrest the growth in natural gas production and boost gas prices, producers have cut back their drilling activity by roughly 50 percent since last fall, but because gas-shale wells are so prolific compared to conventional gas wells, the drilling reduction appears to be having limited impact in slowing production growth. In the latest monthly data from the EIA’s industry survey, gas production does appear to be falling, at least on land. The challenge, however, is to try to decipher whether this production decline is real or involuntary.

 Natural gas storage as of September 25th was at 3,589 billion cubic feet (Bcf) out of an estimated industry-wide capacity of 4,000 Bcf. The problem is that natural gas storage facilities are spread around the country in the eastern and western consuming regions and in the gas producing areas. Additionally, there are limitations on the amount of natural gas that can be transported via pipelines from the producing regions to the consuming markets. As a result of these infrastructure limitations, the overall storage capacity ratio may not accurately reflect the true impact that high storage volumes are having on gas production.

 When we look only at industry-wide storage volumes plotted against total natural gas production, the surge in storage appears to be coinciding with a flattening, and now declining gas production.

 The level of gas storage volumes and the amount of injections shows even more clearly how the nearly full storage levels are impacting gas production.

 As total gas in storage has climbed to a record high, even after a roughly 100 Bcf of new storage capacity added, injection rates have fallen to low levels as there is little appetite or room for more gas. Some portion of the fall in current natural gas production has to be associated with involuntary production curtailments. The challenge is to determine how much of a fall-off is due to curtailments and how much is a fall in well productivity.

 To begin to look at this issue, we were provided data for monthly natural gas production in Texas. At this point we cannot vouch for its correctness, but we plotted it against the initial daily production by month for the state coming from the EIA’s Form 914 survey of gas producers. Lastly, we went to the Texas Railroad Commission web site and took only the 2009 monthly natural gas production data currently available, converted it to daily production figures, and plotted that data. The point of the exercise is to show that all these Texas natural gas production data sources are consistent in their pattern – steadily down. The interesting thing is to look at the shapes of the curves for 2009. The production data provided to us shows flat production for several months and then a steep decline. The EIA’s data shows a decline but at a more modest pace for all of 2009. The Texas Railroad Commission data shows a steady decline, but at a much faster rate than the EIA data. Unfortunately, these curves don’t answer the question: Is the decline due to falling natural gas well productive capacity, or is it a function of low prices, or is it due to involuntary cutbacks due to rapidly filling storage capacity?

 Since a lot of Texas natural gas tends to have higher finding and developing costs we suspect that some of the fall in gas production has been due to the weak gas prices. Producers must have been looking at their costs versus market prices and deciding to shut-in gas production. But some of the fall off in production has to be associated with older, less productive wells. Our guess is, however, that between these two explanations, the former is more important than the latter, but we cannot prove this conclusively.

 So while we wrestle to understand the current falling gas production figures, we are drawn back to looking at what the industry is doing with its drilling effort. The sharp fall-off in gas-oriented drilling rigs will eventually take a toll on production, but for the time being one has to be concerned about the recent uptick in the gas-oriented rig count before we know why production has fallen.

 At the same time, when we look at gas production compared to the number of rigs drilling horizontal wells, although we know not all rigs drilling horizontally are seeking natural gas, the strong upturn there could be a precursor of future gas supply challenges since the gas- shale wells, drilled horizontally, are so much more productive than conventionally drilled gas wells.

 The chart of gas production versus the total number of rigs drilling either directionally or horizontally shows a potentially less ominous supply challenge for the natural gas industry.

 The recovery in natural gas prices back to the $5 per Mcf level is certainly a positive for the industry. The latest production figures suggest that gas supplies are shrinking, but the weekly gas injection figures continue to reflect the impact of nearly full storage capacity. We can safely assume that gas production volumes are being reduced due to involuntary well shut-ins. What we don’t know is whether the industry is Wiley Coyote having run off the mountain road and is now suspended in air waiting to fall.

 Is natural gas production about to drop like a rock? Or is it possible we just need to get rid of some of the gas storage volumes with cold weather allowing producers to ramp back up their shut-in wells? That last scenario will come with current or higher winter gas prices. The former scenario suggests a natural gas price that rockets straight up. Unfortunately an exploding gas price will bring with it the seeds of the next price collapse.

 We reiterate our view that without a healthy economy the natural gas market will struggle to regain solid economic footings.

Our Perspective:

The market has presented great opportunites for companies to lock in their natural gas and electric prices in the deregulated market. Many of our clients have found unexpected savings.

Although the market has ticked up in the last couple of days, lack of demand have still kept the market price competitive from what you spent over the last 12 months.

If you have not looked into these opportunities, it still is not too late. Prices are dynamic and timing is everything.

Take the first step and ask the question, ” How much can we save?”

You might be surprised by the answer.

If you would like to know more about growing your bottom line from savings in the natural gas and electric market, feel free to contact us?

You may email george@hbsadvantage.com or leave a comment and we will contact you.

There are no upfront fees and all the savings fall to your bottom line!

 Allen Brooks is a managing director at Parks Paton Hoepfl & Brown, a Houston-based energy-focused investment banking firm. This article previously appeared in the October 13 issue of Musings From the Oil Patch.

Sagging Energy Rates Creates An Opportunity for Power Purchasers

Real-Time Pricing: Now is the Time. From the September 2009 issue of Building Operating Management magazine. The facililities management resource.

Our Perspective:

Below you will find a great article providing the savings opportunity in the deregulated gas and electric market.

It is true we are finding substantial savings for our clients. Energy Prices are the lowest they have been in the last 3 to 4 years. Our clients are saving from 10% upto 25% over what they paid over the last 12 months on gas and electric supply cost.

Based on annual usage, we have seen small clients saving a couple of thousand dollars over the next year, to our larger clients saving from $90,000 upto $300,000 over the next year. 

What would be the potential savings for your company?

All you have to do is ask. There are no fees involved, the savings fall to the bottom line.

Should you like to know more about the utility savings available for your company call 856-857-1230 or send an email to george@hbsadvantage.com

Enjoy the article, click on the link provided below.

via Sagging Energy Rates Creates An Opportunity for Power Purchasers.