Winter Is Coming: Finalizing a Short & Long-Term Natural Gas Strategy

By Michael DeCaluwe

The energy industry is dynamic. It can be intimidating, especially when you consider that energy costs can account for as much as 15-20% of the annual budget for many manufacturers, property managers and/or municipalities. It takes a true expert – someone who has been around the industry long enough to understand the market and the trends associated with it – to really hold your organization’s hand and walk you through it without fear.

Natural gas is king during the winter months. The winter of 2017-2018 is going one of two ways – 1) warmer than usual or 2) colder than a Charles Dickens novel. Not only should you account for your costs in the short-term, but you’ll need a long-term (5 years and longer) approach to ensure the decisions you make with regard to fixed/indexed billing rate, usage, storage, etc. are the right ones.

What’s more, you’ll need to be honest about what kinds of risks you’re prepared to take (or for that matter, which ones you’re not prepared to). Understanding your risk tolerance in planning for energy needs is really half the battle. So here are a few things to consider when planning your natural gas strategy in both the short and long-term.

Short-Term Energy Planning for Natural Gas.

Understand the pricing structure of your current energy plan.

For each pricing structure, there are benefits and risks that can save you money. Reconciling your pricing structure in the short-term can help you plan in advance and maximize savings (or minimize damage). Fixed rates save you money in a particularly cold winter (especially if you’ve locked in early and/or participate in a pooled billing system). For a warmer season (like what we have seen in the past couple of years), you potentially run the risk of overspending. In this case, we’d recommend a variable rate in the short-term (especially if you can hop into a pool and help mitigate risk). Another way to address it might be a fixed rate swing plan. A swing gives you a range or tolerance that you can use over or under (determined by a two-year monthly usage average) and still pay the same fixed rate. In any case…

Lock in your gas prices now.

Due to the dynamic nature of our industry, there’s a lot of “hurry up and wait” in our business. What do this mean? It means that deciding on a natural gas energy strategy requires both thought and urgency. Whether it be a fixed or variable rate, single or dual billing, we advise our clients to be opportunistic – give thought to which product and plan are most appropriate for their business and the season and move on it.

Long-Term Energy Planning for Natural Gas.

Consider long-term market trends when deciding on term length.

It’s important to know and review long-term market trends when deciding on a term length of your current gas service. One major market influencer of the natural gas market is our country’s export of natural gas. As our nation’s volume of exported gas continues to climb in the coming years, it will be important to see if the worldwide price of gas (which is 3 to 4 times what it is in the U.S.) starts to influence gas prices here. These long-term market influencers help determine a proper buying strategy and term length for your gas needs today.

Look for efficiency opportunities.

Energy efficiency projects have particular benefits for your long-term energy costs. Not only do many of these projects have great ROI (return on investment) periods, but there are utility rebates in place to help fund many of these types of projects. Outside of raw energy costs, investing in new energy-efficient equipment can also cut maintenance costs and provide reliability to your operations, providing you peace of mind. But again, the decision regarding whether to invest in efficiency opportunities lies in having a sound long-term energy strategy that takes these types of projects into account as you attempt to lower and control natural gas costs.

It bears repeating that once you’ve found the right natural gas strategy for your business, you should act without hesitation. This means understanding your product pricing and the terms it includes (rate, usage, storage, contract length, etc.) and being decisive. This is underscored by the necessity to keep an eye on those outside forces that affect the natural gas market (like exports and foreign trade). Of course, not everyone has time to do that. So when planning your natural gas solution, look for someone who can act as a partner and resource for you while you’re focused on other things – like running your business.

Whatever your energy budget may be, we can help work with you and our supplier partners to tailor a natural gas solution that is friendly. Contact us at 630-225-4557 and we’ll help you go over your current and future energy strategy to maximize its value to your organization.

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