Energy Price Forecast.
The U.S. Energy Information Agency (EIA)
devotes a tremendous amount of resources to develop short and long-term
forecasts for energy prices. Here are a few highlights from their
most recent report.
"The energy forecast is sensitive to economic conditions. In this
forecast, U.S. real gross domestic product (GDP) is expected to decline
by 2 percent in 2009, leading to decreases in domestic energy
consumption for all major fuels. Economic recovery is
projected to
begin in 2010, with 2 percent year-over-year growth in GDP."
"The U.S. economic downturn is also contributing to lower natural gas
prices. The Henry Hub natural gas spot price is projected to
decline
from an average of $9.13 per Mcf in 2008 to $5.78 per Mcf in 2009, but
then increase in 2010 to an average of $6.63 per Mcf."
The entire forecast can be found here.
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Your
Energy Manager
Topic: Energy Buying
Opportunity
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Welcome,
Independent Energy Consultants, Inc. is committed to helping
its clients make
well-informed and cost-effective decisions regarding
their energy supply and consumption. We are
sending you this newsletter
to help you understand how decisions that are made, or not made, effect
your company's bottom line.
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Energy
Prices Plummet
Energy
prices soared in the first half of 2008 along with most other
commodities. As predicted, those commodities prices were
unsustainable
and the bubble has burst. The high prices were a major
contributor to
the worldwide economic crisis we are now facing. Now as
businesses
struggle we are seeing energy demand erode and prices fall.
The
table below shows how natural gas futures prices have traded on the New
York Mercantile Exchange (Nymex). You will notice how each of the
next
12-monthly contracts is either at its 52-week low or had just made a
new low. Many of these contracts are at 5-year lows! Most
prices are
well below their price from a year ago, and March is trading at 1/3 of
its 52-week high price.
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Natural
Gas Futures Contract Month
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Current
Price $/MMBtu
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52-week
Low
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Date
of Low
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52-week
High
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Date
of High
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Percent
change from 2/4/08
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Mar-09
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$4.417
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$4.355
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1/26/2009
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$14.690
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7/3/2008
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-50.01%
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Apr-09
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$4.489
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$4.428
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1/28/2009
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$12.002
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7/3/2008
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-44.38%
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May-09
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$4.574
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$4.500
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1/29/2009
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$11.817
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7/2/2008
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-43.24%
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Jun-09
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$4.689
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$4.607
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1/28/2009
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$11.869
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7/3/2008
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-42.28%
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Jul-09
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$4.819
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$4.731
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1/28/2009
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$11.981
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7/2/2008
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-41.15%
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Aug-09
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$4.914
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$4.828
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1/28/2009
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$12.038
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7/2/2008
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-40.43%
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Sep-09
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$4.970
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$4.895
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1/28/2009
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$12.059
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7/2/2008
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-39.82%
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Oct-09
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$5.097
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$5.020
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1/28/2009
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$12.115
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7/2/2008
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-38.69%
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Nov-09
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$5.672
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$5.611
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1/28/2009
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$12.405
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7/2/2008
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-33.42%
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Dec-09
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$6.272
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$6.225
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1/30/2009
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$12.750
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7/2/2008
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-28.52%
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Jan-10
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$6.552
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$6.500
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1/23/2009
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$12.946
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7/3/2008
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-27.03%
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Feb-10
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$6.567
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$6.520
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1/23/2009
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$12.881
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7/3/2008
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-26.90%
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These prices present an excellent buying opportunity for
those wanting to lock-in fixed rates for longer term agreements.
For commercial and industrial customers with good credit ratings, we
are seeing companies seeking to buy natural gas and/or electric
supply,
for as long as the next 4-5 years.
Contact Independent Energy Consultants to
obtain a free
quote for your natural gas or electric needs.
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Is Supply Drying Up?
Now
that we have identified this as an excellent buying opportunity, a
logical question would be - could prices go even lower? Our
answer is a definite, yes. While the magnitude of potential price
increases
is much greater than the potential for decreases
(energy prices cannot go to zero), we will need to see the economy
start to recover before the downward trend reverses. At this time
all technical indicators
continue to point to further downside potential. For end-use
consumers the trend remains your friend.
The
chart above (courtesy of Baker Hughes Inc.)
shows how suppliers have reacted to falling prices. They are
shutting down oil and natural gas rigs as fast as they can. When
the economy starts to rebound and demand outpaces supply, we could see
prices shoot up rapidly. It
took significant demand erosion to turn the tide of rising prices, it
will now take serious supply erosion to send prices back up. We may not see a supply/demand equilibrium for months, but it
is definitely on the way. You can see that the rig count had been
on a steady 7-year climb as producers responded to rising prices.
That trend reversed itself in Q4 2008, and we now are approximately 30%
below the peak.
It is also interesting to
note that we are still recovering from the impacts of hurricanes Gustav
and Ike. Those category 3/4
hurricanes rivaled hurricanes Rita and Katrina in strength and the path
they took, but had virtually no impact on energy prices. The Minerals Management Services (MMS)
estimates that 11.0% of the oil production in the Gulf of Mexico and
about 15.0% of the natural gas production in the Gulf is still shut-in
from Hurricanes Gustav and Ike last September. Personnel are
still evacuated from 34 production platforms, equivalent to 4.9% of the
694 manned platforms in the Gulf. The
MMS previously reported that 23 manned platforms were destroyed by
Ike. This will be worth remembering if the storm forecasters
predict another bad year. The 2009 hurricane forecasts
will be released in April.
Independent Energy Consultants
looks at rig counts as one of many inputs in our daily market
analysis. Contact us if you would like help meeting your energy
purchasing objectives.
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