Better Cost Control now licensed in New Hampshire

Better Cost Control, a leading electricity and natural gas procurement adviser for companies in the deregulated states, has just received license approval by the state of New Hampshire’s Public Utility Commission.

Based in Newton, Massachusetts, Better Cost Control has been providing its energy procurement services since 2002.  Their experience  and expertise puts them in the position to get customers the best terms on their energy costs. They do this by finding prices that are not advertised and negotiating with energy supply companies, some of whom only work with brokers like Better Cost Control.

By working with energy suppliers throughout the U.S. they are well aware of each supplier’s individual strengths and weaknesses. 

If you have ever encountered an energy contract, you know they are highly complex. The devil is in the details; what seems at first to be the lowest price may, in the end, actually be higher than you thought. The Better Cost Control team negotiates hundreds of these contracts each year. They know what to look for.

Services are now offered through independent agents in these states:

  • Connecticut
  • Delaware
  • Illinois
  • Maine
  • Maryland
  • Massachusetts
  • New Hampshire
  • New Jersey
  • New York
  • Ohio
  • Pennsylvania
  • Rhode Island
  • Texas
  • Washington, D.C.

For more information or for custom pricing, call 617-332-7767.

Increasing Use of Natural Gas May Lead to Infrastructure Issues

Natural Gas Pipeline

Inexpensive natural gas is affecting the traditionally favorable cost of coal-fired power plants. With increased shale production, estimates of recoverable domestic gas reserves have surged in recent years.

Natural gas should continue to increase its use in power plants as the EPA creates greenhouse gas regulations for new power generation that will “effectively ban new coal-fired power plants,” ScottMadden said.

“The electric industry is beginning to adjust its generation complement accordingly, as the shale gas boom makes gas-fired power compelling for new generation, at least for the moment,” the firm said.

The nuclear power industry is also facing new concerns as the Nuclear Regulatory Commission moves forward with new requirements move than a year after the Fukushima Dai-ichi meltdown in Japan.

The natural gas industry faces its own concerns, however, These concerns range from public pushback over fracking, to the need to address “aging pipes,” according to the consultant’s report.

Potential unknowns facing the natural gas industry include regulation of expanded exports of liquefied natural gas (LNG). With so many of its nuclear plants closed post-Fukushima, Japan is seen as a growing market for LNG. Meanwhile, back in the United States, there is the potential for natural gas to play a growing role in transportation fuel for motor vehicles.

Pipeline flow capacity constraints are emerging issues for the natural gas and power sectors. To meet a possible doubling of natural gas demand, an additional 24,000 miles of pipeline could be required in the new future. Gas companies will be major players in this future build-out of transportation infrastructure for power generation.

Electricity and Gas Energy Market Update

Natural Gas PipelineAfter reaching a recent high in late July, NYMEX gas prices fell for the first two weeks of August as weather moderated.  Prices have stabilized, but remain low overall.  One big customer question is whether there will be a fall dip in prices similar to 2009, 2011 and 2012.  Understand that electricity prices are influenced, in great part, by natural gas prices.

NYMEX Prices as of 8/22/12

Prompt (September):    $2.82 (we are down today due to bearish storage report)

12-Month Strip                 $3.31  (this is used for pricing 12 month contracts)

Cal 13                                    $3.54 (Calendar year 2013

Cal 14                                    $3.94

Cal 15                                    $4.15

Reasons for market movements

NYMEX prompt peaked on 7/31/12 at $3.27.  Calendar Strips also hit highs since February on or near that date.  Anemic storage injections and hot weather were key drivers.Note that through July 31st, this summer was hotter than last and 2012 was the hottest year on record.

    • However, August weather has been much milder and demand has dropped, leading to lower prices.
    • Prompt gas fell swiftly from $3.25 to near $2.75 by August 10th, but has been unable to sustain a move below $2.70 due to technical support and coal-to-gas switching.
    • Natural gas storage inventories remain on pace for a new record by the end of the injection season, but the likelihood of a storage glut has greatly diminished by below normal injections. Weekly injections have averaged 23 Bcf/week less than a year ago thereby reducing the surplus from 888 Bcf to 442 Bcf compared to a year ago.  At this pace, inventories will finish the season well below estimated national capacity of 4,100 Bcf.  (see storage chart for more detail and graphical illustration) .  Remember that based on national capacity of 4,100 Bcf, the surplus must decline to at least 248 Bcf since last year reached 3,852 Bcf
      • Last week’s storage report was larger than expected and prices are testing $2.70 support again.
  • Rig Counts – natural gas rig counts are down 45% versus a year ago and horizontal rig counts (mostly shale) are only up by 1%.  Production is relatively flat over the last few months – this may be due to improving shale technology, a backlog of wells that have been completed but not connected to the pipeline grid and the lag impact of placing rig versus starting production.  And rig counts are not always a reliable metric, but they are a trend indicator and lead to concerns about ongoing supply growth into 2013-14.
  • Coal-to-gas switching peak in the spring when gas prices were below $2.00.  For the first time since tracking began in the 1970’s, gas fired generation matched coal fired generation in the US supply stack.  This was due to economics – not EPA.  We expect ongoing strong switching, although not as much may be needed due to the shrinking storage surplus.  This is a factor that has allowed prices to move into the $2.75 – 3.25 range.  In the long-term (2015), EPA Mercury rules will be large driver of coal plant retirements in addition to low gas prices.
  • Hurricane season – the season is less of a concern as US supply migrates onshore due to shale gas, but there is still some risk.  So far 2012 has been quiet, but we are now in the peak of the season until mid-October.  Overall expectations for this season are not for an active season. Tropical Storm Isaac is currently in the Caribbean and is a threat to Florida and the Eastern Gulf of Mexico.
  • Where will prices go from here?
    • Short-term – there is still potential for a fall dip, but we do not expect new lows ($1.90 in April) due to shrinking storage surplus and reduced chance of a storage glut.  Breaking through $2.70 gas support is a first step and will depend on coal-to-gas switching and short-term weather.
    • Long-term – Prices for 2013 and beyond are likely to move directionally with the prompt month, but any extreme dip will have a muted impact on long-term because weather’s impact is mostly on near-term and there is limited ability to carryover storage surplus from 2012 to 2013 due to limited capacity.  Going into 2013 with a smaller storage surplus, flat or even declining gas production, and increased demand due to coal-to-gas switching all point to higher prices.  So outside of weather, the fundamentals are bullish compared to last year.  Furthermore, winter 11-12 was the warmest on record and is unlikely to be repeated.  This does not mean that prices will skyrocket as shale gas still limits upside, but it does point towards higher prices in 2013 compared to 2012 and the possibility that we’ve seen the bottom.
    • Power – gas relationships remain critical, but heat rates are up nationally over the last year and this relationship has eroded.  However, heat rates are down over the last month and this is worth noting to customers.
    • What else?
      • EPA Regulations:  Just last week the Cross States Air Rule (CSAPR) was vacated.  This is a big win for coal and will, at minimum, delay implementation for a few years.  However, market impacts were modest as gas prices did sustain declines after the announcement and some regional heat rates are down.  ERCOT and PJM are the markets most impacted – stay tuned for more information.  The bigger EPA rule is MATS (Mercury and Air Toxics Standards) and this rule is unaffected and has a much broader impact starting in 2015.  Most coal-to-gas switching in 2012 has been due to gas versus coal economics and this has not changed.  Please reach out to the Market Intelligence or Regulatory Affairs team for more information.
      • Message to Customers:
          • If you are looking for a fall dip, it is possible, but you should not expect new market lows due to changing fundamentals over the summer.  It is also difficult to time this dip (September in 2009, October in 2010, while prices fell into winter in 2011 due to mild weather).
            • So customers must ask:  Will there be a dip?  When will it happen?  And how deep?
          • For long-term, it is still not time to sell fear as prices should remain at levels low based on long-term history (great value), but it may not be a simple as waiting for the last minute and locking in a year-over-year decline.  There is clearly risk that 2013 and 2014 prices will go up from here and even if they do fall, they may not fall as low as 2012.  So be careful setting targets.
          • For customers that expect never-ending price declines, a key point is that we did see market participants react to low prices in 2012.  Producer cuts and increases in gas generation demonstrated that market participant will react to low price in a way that pushes prices higher. So outside of abnormal events such as the record-warm winter, the warm does have a bottom.
          • For index product customers, there is still great value in the index markets and customers should continue to participate.
          • And gas-power correlations remain critical, but not as strong as in the past so be careful basing strategy on gas along.  There are many regional issues that I have not covered in this email.

        Did you find this posting a bit challenging to understand?  If so, this is one more reason you will benefit from an electricity/energy broker such as Better Cost Control.

Why do electricity and gas contracts have early termination fees?

Many people ask why electricity and gas contracts have early termination fees?  There is a very good reason.  First look at it from this perspective:  the energy supplier is guaranteeing that your contracted price will never rise, no matter what, even if a disaster strikes the energy supply infrastructure.  They are protecting themselves with a financial instrument that requires that you buy the agreed amount of energy during your contract term.  If you don’t…as in early termination…they still have a financial obligation to make good on using that energy.  Would it be fair, from a purely ethical perspective, to walk away from that transaction?  If prices in the market go down slightly and you find your contract price a bit higher, remember: you are protected from price increases for the term of the contract.  You will also find that over the entire life of the contract, you will likely come out ahead and save money.  Another analogy I like to use:  if you pay $10,000/year for fire insurance on your business, do you feel like you wasted your money if you didn’t have a fire?  Of course not!  Contracting electricity and gas is like getting an insurance policy to protect your budget!  You have absolutely no way to accurately budget your electricity and natural gas costs without a supply contract.

If your contract does not have any cancellation fees, believe it or not, it probably doesn’t do a very good job of protecting your price exposure.  You can’t have your cake and eat it too, as they say!

Want to learn more?  Call us!

Why You Should Contract Energy for 2013 & 2014 Now

Some electricity and natural gas customers are hesitant to contract their utilities for more than a year, because the price is higher than shorter term contracts.  There are some compelling reasons to contract for a longer term that demonstrate the value of paying the “risk premium” for an extended contract.

First, let’s look at why prices are so low today

  • Collapse of commodity bubble and the global recession led to a dramatic decline in energy prices from 2008 to 2009.
  • 12-month strip declined from $13 to $6 per MMBtu in just 6-months
  • Prolific shale gas production – as the economy rebounded and oil and other commodity prices rose, shale gas dramatically grew in the US natural gas supply. So natural gas prices detached from crude oil in 2009 and remained low due to new supplies. Essentially, natural gas is primarily in the US market while many other commodities trade globally. This has insulated natural gas and electricity prices from significant volatility.
  • 12-month strip prices ranged  from $4 to $6 per MMBtu from 2009 through October 2011
  • Record breaking warm winter– last winter was the warmest winter on record for the United States. The weather resulted in dramatically reduced natural gas demand for heating.
  • The result was a record natural gas storage surplus that required lower prices to re-balance the market.
  •  As of March 30th, storage inventories were 887 Bcf (or 55%) above the previous year and 934 (60%) above the 5-year average.
  • This surplus would be unsustainable because it would result in storage inventories above 4,600 Bcf. Domestic storage capacity is approximately 4,100 Bcf.
  • Therefore, there were 2 possible outcomes.

a. A combination of supply reductions and/or demand increases to rebalance the market by reducing storage injections to avoid a fall storage glut;
OR
b. Inventories reach capacity prior to winter demand commencing. The resulting storage glut would require precipitous price declines to shut-in supplies for immediate balance of the market.

  •  The potential for either outcome pushed down near-term natural gas prices.
  • Prompt month natural gas fell to $1.90 per MMBtu and the 12-month strip prices fell to a 10-year low of $2.61 per MMBtu on April 18, 2012.
  • Long-term prices fell to new lows, but maintained a significant premium over the prompt month because current year storage has limited impact on long-term prices.
Why don’t we think this will continue? Why do we expect prices to rise?

Compared to 2011, the natural gas storage surplus has fallen from 55% to 27% over 12-weeks.
And injections have average 27 Bcf/week below injections from last year. This pace is more than
needed to avoid a storage glut.

The smaller injections were primarily caused by (1) coal-to-gas switching in the
generation stack and (2) reduced natural gas production, both of which have been
driven by lower prices.

  • The result is that prompt natural gas prices have raised from $1.90 to recent highs over $2.80 per MMBtu.
  • The reaction by generators and producers has illustrated that market participants will react strongly to low prices, thereby reducing the chance for a repeat of sub-$2.00 prices.

Storage surplus will be smaller in 2013

  •  The current surplus of 653 Bcf must fall to approximately 248 Bcf (capacity of 4,100 Bcf minus November 2011 inventory of 3,852 Bcf) by the end of the injection season.
  • Less supply cushion = higher prices as the cushion acts like insurance for an extremely cold winter.
  • Smaller surplus = reduced need for lower prices to re-balance the market via producer cuts or for coal-to-gas switching.

Impact of producer reactions

  • Current natural gas rig counts are down by 38% versus a year ago, which is a strong indication that producers are reacting to low prices.
  • Gas-directed rigs are dropping rapidly, suggesting a meaningful gas response going into 2013 with higher prices.

Conclusions

  • Natural gas prices below $3.00 have significantly impacted drilling economics.
  • Expect reduced natural gas production in 2013, which support higher prices compared to 2012.
  • Price upside is limited as there are tremendous shale reserves available at modestly higher price levels.
  • There is one final but very important reason that makes ourrepeat of 2012 unlikely – the chance of reaching a consecutive record warm winter again is mininscule.  Therefore, we can predict an increased demand for gas and higher prices.

So, customers should consider buying now at historically low prices as opposed to waiting and recieving the likely higher rates in 2013 and 2014.

This next chart displays the Current Percentile, which represents the percentage of days during the stated period in which the market price has been below the current price.

Why buy 2014 as well as 2013 now?

  • Evidence is stacking in favor of higher prices in 2013 that include normalized weather, reduced coal-to-gas switching and producer reactions to low prices which are expected to impact 2014 as well.
  • In addition, growing gas demand due to potential for a strengthening US economy and expected closure of significant coal generation in anticipation of EPA regulations.
  • Upcoming EPA Mercury and Cross State Air Rule are anticipated to motivate between 50 to 80 GW of retirements of active coal plants. The pace of retirements will be dramatically faster beginning in 2014. Note that retirements of over 30 GW of capacity have already been formally announced.

What if you wait until September?

  • Your decision to wait might be correct if we do not have a hot summer and the weather is mild.
  • Hurricane impact on gas prices has been reduced with the growth of shale extraction inland which does mitigate some risk
  • BUT, the market is so low right now, that if you guess wrong on the weather, you will be paying higher prices
Understand that electricity and gas contracts are intended to protect you from price risk.  Timing the market is impossible. Lock in your price and eliminate your risk of rising prices.

Better Cost Control makes no representation or warranty regarding the accuracy, reliability, comprehensiveness, or currency of the aforementioned data.
This information is being provided as a courtesy and should not be construed as an offer to sell, a solicitation of an offer any energy commodity.
Past performance is not necessarily indicative of future results. Reliance upon this information is at the sole risk of the reader.

Save 25% on heating cost this winter

Based on the present NYMEX natural gas prices, many companies have the ability to reduce their heating costs this winter by contracting their natural gas supply this winter.

You may wonder why and how you can save this much money?  Many of the local gas utilities have contracted their natural gas supplies this past summer, when prices were higher.  With the present economic upheaval that we are experiencing, gas prices have dropped.  And you can take advantage of that price drop by contacting Better Cost Control to contract your natural gas supply for this winter.

Locking in a one year price guarantees that your price will not change for the term of the contract.  The utilities only publish their gas supply prices for a limited period of time, like six months.  So we can’t guarantee that you will save 25% after that period, because no one knows what the price of gas will be in six months.  But there is a reasonable chance that if you can save 25% this winter, even if prices go down in the November – December 2009 time frame, you will still come out a winner.  Contact us to learn more about protecting your electricity and gas budgets.