Energy buying strategies in a volatile market

Hans RottmannPer last week’s Energy Market Update, I have provided some energy buying strategies in the current volatile market.

Market Overview
The trend in natural gas and electricity prices has been favorable for most energy buyers over the last month. NYMEX natural gas futures have fallen significantly and both regional gas and power prices have followed the downward trend. The key reasons are that weather has been moderate and storage injections have been much larger than a year ago.

The details are in the numbers below (all prices are in MMBtu):

Prices as of 6/24/13 and % change since 5/24/13.

Prompt Month $3.70 -0.58
12-Month Strip $3.89 -0.47
Calendar 2014 $4.04 -0.23
Calendar 2015 $4.21 -0.22
Calendar 2016 $4.38 -0.19

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Hurricane Season’s Effect on the U.S. Energy Market

You might have missed it, but hurricane season officially started June 1. Tropical Storm Andrea made landfall June 6 about 10 miles south of Steinhatchee, Florida. Fortunately, Andrea did not have a significant impact on energy markets. Storm season usually peaks between mid-August to October, but it is best to be prepared whether you are a resident of an area vulnerable to hurricanes or a buyer of energy, which is vulnerable to higher prices during this time. Remember that in 2005, Hurricanes Katrina and Rita caused natural gas futures to exceed $12/MMBtu for the first time ever.

One significant change since 2005 is the development of shale gas. Per the U.S. Energy Information Administration (EIA), the amount of the U.S. gas supply produced in the federal Gulf of Mexico region fell from 26% in 1997 to 6% in 2012. This change is due to onshore extraction of shale gas reserves. And the result is that the amount of offshore supply that is vulnerable to interruption by hurricanes is much lower.

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