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Managing the Uncertainty of Future Energy Markets

Posted by Tom Dufraine on Jan 28, 2021 4:09:00 PM

Did you know that the price of energy can change not just daily, but from hour to hour? Like many commodities, the markets for electricity, natural gas, oil, and renewable energy are complex and constantly changing.

Fundamental economic factors, like supply and demand are relatively predictable but when you add political and regulatory factors to the mix, as well as financial speculation, it becomes more complex. On top of that, we are still facing the effects of COVID and economic shutdowns, making forecasting energy prices evermore challenging.

Current Factors Effecting Energy Markets and Energy Supply and Demand

  • COVID-19- Lockdowns, Temporary/Permanent Business Closures, and a Large Percentage of Work Force Working from Home
  • Economic Recovery- Unemployment Rates, Government Stimulus, Permanent Business Closures
  • Government Regulations- Effects of New Regulations on Fossil Fuels Specifically Natural Gas, Oil Pipelines others Fossil Fuels and Nuclear Generation
  • Energy Imports and Exports- Changes in US Exports of LNG and Increase Imports Threatening U.S Energy Independence
  • Generation- Reduction of Fossil Fuel and Nuclear Generation with an Increase in Renewable Generation
  • Natural Gas Storage- Working Gas in Storage and Average Weekly Injections/Withdrawals
  • Weather Patterns – Short-Term Weather Can Affect Natural Gas Storage in the Winter and Above Average Summer Temps Affects Summer/Fall Electricity Markets

Over the past 5 years, we have experienced historical lows in electricity and natural gas markets. In 2020, the longest stretch of sub $2.00 NYMEX occurred from mid-January through August. In the short term, we anticipate markets to remain relatively attractive through the Spring and early Summer. However, there are strong indicators of future market escalation.

energy markets historical lows

For the last 5 years, we have seen savings from contract to contract as those were procured during historical electricity and natural gas lows. Buying strategies moving forward will need to transform to reflect changes in the energy markets. With markets holding for the short-term, we now have opportunities to lock in very competitive rates for future contracts for start dates in 2022/2023 and beyond. There is a greater likelihood of securing rates that will be lower than those 2-4 years from now.