Energy Alternatives

Cheap Gas Prices – All in a Days Work

On the 18th December 09 there were 4,200,000 therms traded on the day-ahead market, there were 1,065,000 therms traded for Jan-10 gas, 25,000 therms trade for April 10, and 0 volume traded for May-10. If you were to lock out a 12 month contract on this day, suppliers will be able to price for May-10 but is it going to be truly market reflective? There will be a risk premium element in the purchase incase gas prices rise.

Reason why day-ahead prices are so cheap:

The spot price of natural gas has fallen dramatically worldwide in 2009. A number of factors have caused this, the global economic crisis, new discoveries of natural gas fields off Gulf of Mexico and, specifically for the UK, the amount of LNG import. The graph on my blog shows the average day-ahead price compared to the highest and lowest quoted price for each individual month in 2009. As well as showing the variance in gas prices throughout the year, you can see that the average day-ahead price is very close to minimum monthly price. The average day-ahead Feb-09 price was lower than any price available throughout the year and for Jun-09 there were only 3 days in the entire year when you could have obtained a cheaper price – not very likely.

A lot of utilities companies have signed up to take-or pay contracts, with the price linked to oil prices which it was / is indexed from. Gas prices seem to have uncoupled from oil prices over the past few months so suppliers will be selling at a loss if prices continue the way they are.

Do I qualify?

There are certain criteria you need to meet to be able to take advantage of flexible energy purchasing, for example, volume and profile. These criteria and thresholds will vary between each supplier.

Is it for me?

Floating all of your volume is a fairly riskly statergy unless you can pass on any potential price increases further up your price chain. Be mindful that day-ahead markets can be volatile with certain events triggering a price increase; The cold weather has pushed day-ahead prices up by 20% last week for example. Again, as mentioned in previous posts, your flexible energy framework should provide you the ability to lock out in a rising market but unfix / re-float as market price falls. On the plus side, this year (if managed correctly) you would have paid less than 1 p/Kwh for your unit rates.

More data, graphs and information can be found:

http://www.mrlazybones.com/2009/12/cheap-gas-prices-all-in-days-work.html

or

http://www.mrlazybones.com/search/label/energy