The Art of Smart Energy Procurement

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Warhol said “I’m not afraid to die; I just don’t want to be there when it happens”

Andy Warhol, the American artist who was a leading figure in the visual art movement known as pop art, died on this day in 1987. His works of art have been described by the Economist as a bellwether for the state of the art market, with one of his paintings “Silver Car Crash” (1963) selling for $105m.

For commercial organizations, the bellwethers are oil and gas cost and recently, in the US at least, it has not so much been high prices but low ones. A glut of oil across the globe and huge amounts of natural gas from shale deposits has changed the face of the US energy market and electricity generation in particular.

In fact, power generation is the largest consumer of natural gas now, using more than the industrial sector and each of the buildings sectors (residential and commercial). Low gas prices have stimulated investment, new gas-fired generation plants continue to come on stream producing electricity more efficiently with fewer emissions than coal. In 2015, forty percent of new utility-scale generation was gas-fired (some 6200MW). Over the same period, some 15,000MW of coal plant was retired.

If we look at the prices for last year we can understand why. In 2015, the average wholesale cost of natural gas at Henry Hub was just $2.61 mm/btu, the lowest since 1999, with December’s average an incredible $1.93 mm/btu.

So what does this dash for natural gas generation mean for future prices?

Low natural gas wholesale prices have begun to choke investment in new shale projects and curtail existing ones which need a higher market price to be viable. As the power sector becomes more weighted toward natural gas, the supply-demand balance should ultimately correct. The EIA’s Short-Term Energy Outlook expects natural gas prices to increase over the next two years, something we should not be surprised about.

Add to this the return of industrial manufacturing, a recovering economy and the building of multiple natural gas liquefaction facilities (LNG) and export terminals and energy consumers will soon see a different landscape of energy prices which may have energy procurement professionals thinking a little like Warhol, “I’m not afraid of rising energy prices, I just don’t want to be there when it happens”.

The most important things to remember as an energy consumer is that you can do little to influence the energy market direction, but you can take action to protect yourself against future price rises yet still participate in future price falls by improving the quality of decision making.

Our energy sourcing experts apply advanced tendering, pricing and contracting options. We fine-tune energy procurement strategies to the objectives and risk profile of the business so you make better decisions – every time!

To learn more about energy procurement and risk management you can connect with us here or call one of our sourcing experts now: 1-888-988-5474

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