Prepare Your Procurement Strategy for These Major Energy Market Drivers

Jonathan Lee

As we approach the end of the year and the start of meteorological winter, there are elements to be aware of in the natural gas market. Supply and demand fundamentals have continued to rebalance throughout the year. However, wholesale natural gas prices have mostly moved into a holding pattern since June as production began to pick up and below-normal summer temperatures in the eastern half of the country limited excessive power sector demand.

In the recently presented, “Q4 Energy Market: Impacts of Tightening Natural Gas Market on Procurement Strategy” webinar, we examined the major market drivers and shared our outlook for the winter of 2017/2018. Additionally, we sought to explore how a company’s risk tolerance impacts energy purchasing decisions and how awareness of certain risk factors can help uncover potential opportunities. Here are a few of the key takeaways from the presentation:

1. Natural gas storage is at a deficit compared to last year and the five-year average.

Slower production earlier in the year, coupled with below-average storage injections, resulted in lower supplies of natural gas currently in storage heading into this upcoming winter.

2. La Niña is expected to impact winter weather, elevating heating demand expectations.

Last year was the sixth warmest winter on record, but reemerging La Niña conditions have forecasters calling for a colder winter this year. A La Niña-influenced winter can be described as the “extreme normal,” which typically brings colder and wetter conditions to the major gas consuming regions in the Midwest and Northeast.

3. Despite tighter natural gas supply and demand conditions, wholesale natural gas and electric prices are trading mostly lower than last year at this time.

As traders wait for colder winter temperatures to arrive, wholesale natural gas prices have traded in a very narrow range, which has also muted fluctuations on the wholesale electric side. However, volatility could soon return as winter approaches.

4. Ecova’s Risk Tolerance and Procurement strategy.

We shared what you can be doing now to reduce risk in energy procurement.

  • Identify your corporate risk tolerance –this will go a long way in developing a successful procurement strategy.
  • Gain an understanding of the various risk factors present in a deregulated energy market portfolio.
  • Appropriately match supply risk strategy options with corporate risk tolerance, the greatest regional and seasonal volatility portfolio risk, and the capacity for implementation.

To go deeper into these details, you’re invited to watch the webinar recording below. Our new Energy Price Hub is also great resource to help you stay informed and get the latest updates on energy prices and market intelligence.

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