Hey guys! It’s Becky here with this week’s Two-Minute Tuesday. In keeping with our theme of kicking 2021 off on the right foot, I thought I’d address one of the commonly asked questions I receive from my clients: When should I go to market?
Now there’s no proverbial crystal ball. Everyone knows that. But we used to gauge patterns based off of following weather. So you wouldn’t buy gas in the winter, and you wouldn’t buy power in the summer.
But as the last couple of years have shown us, that doesn’t really exist anymore.
Factors Impacting the Energy Market
We had some of the lowest natural gas pricing in 20 years in March of last year when there was still snow on the ground. The year before that, the fourth of July in 2019 showed us ridiculously low electricity rates.
So how are you supposed to know when to go to market?
Well, let’s slow down and look at the facts.
Year over year, we know that natural gas is down about 25 percent from this time last year. While the rig count has be steadily increasing, it still hasn’t returned to its full capacity.
Meanwhile, exports of liquefied natural gas are at record all-time highs. They’re receiving $14 per MMBtu right now in China, whereas here domestically they’re getting a little over $2. So there’s definitely demand increasing for exports.
However, demand domestically hasn’t returned quite yet. We’ve had a very mild winter, and we’re still experiencing some of the effects of COVID-19 shutdowns. This summer should prove some volatility to return as demand comes back online for both natural gas and power. We hope that production will follow, but at this point it’s still not up to capacity.
That all said, how are you supposed to make a decision on when you should be looking at your options to make an energy purchase?
A Shift in Perspective
I’d encourage you to switch the conversation from savings to risk management. Are you willing to look at some options now and potentially pay a little bit higher than your current contract to have safety and security and lock in for the next three years? Or, are you willing to take on a little more risk and ride the market and see how the change in political parties or social and economic factors play out? How is the vaccine going to have an effect on shutdowns?
It could go either way, it just depends on the risk level that you’re comfortable with as an organization and what you’d like to see as an end result.
So, I’d encourage you to have the conversation now with your strategic energy advisor just so you’re on the same page. You can set up some market watches to start watching pricing if you’re not quite ready to take action yet. But at least you’ll be in the know when the opportunity arises to make your energy purchase.
Thanks so much for listening, and we’ll talk to you next week!
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