GSE Consulting Blog

Inflation - Commodity Price Trends 8/2/11

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Wed, 03 Aug 2011 11:11:00 -1000

As we all know, the government stimulus plan over the last couple of years has included a massive infusion of money into the economy which has created skyrocketing national debt and a significant devaluation of the dollar. This, in turn, has created substantial inflation across all traded commodities over the last couple of years. Below is a chart comparing the increases in various commodity prices since Jan. 2009. Note that natural gas is the only commodity that has actually decreased since this time. Despite recent increases in natural gas supplies due to various shale discoveries, it is important to note that most economists believe that we will continue to see significant inflationary pressure for commodities over the next couple of years. Will natural gas continue to remain stagnant, or will it start to follow the trends of other commodities as the US dollar continues to fall? My bet is on the latter scenario. Ultimately, the decision is whether to lock in now or wait until contract expiration. The potential risks associated with waiting seem to far outweigh the potential benefits of trying to lock in at a lower rate. Only time will tell.

June 2011 - Nat Gas Spike Overview

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Sat, 11 Jun 2011 12:16:00 -1000

Adding to the bullish viewpoint permeating around in the natural gas markets is the ongoing slow return of nuclear power generating capacity that has plagued the power industry throughout the entire “shoulder” season and it is currently looking like it will linger as we enter the summer cooling season. As of today there is still about 8,000 MW of capacity shut down over and above the level for last year for the same week, as well as about 7,400 MW more than the five-year average for the same week. Not only are the outages this year far above last year and the five-year average, but the return of many of these facility from maintenance has been much slower than the normal return rate, resulting in new power-related requirements on natural gas. Even with a modicum of cooling over the past weekend, the power output for the week ending June 2nd rose almost 12% from the previous week as well as being over 5% above last year at this time according to Reuters. A lot of this additional power requirement would normally be taken care of by nuclear generated capacity, but with the large amount of nuclear capacity still down, the incremental power requirements are falling on natural gas.

- Reliant/NRG

Natural Gas Weekly Outlook For March 28, 2001-April 01, 2011

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Sat, 26 Mar 2011 08:36:00 -1000

The nuclear crisis in Japan has been taking most of the attention for natural gas markets, where traders and analysts are speculating that consumption of natural gas will increase from Japan, amid the damage to the Japanese nuclear reactors, in order to generate electricity, and accordingly, they expect prices of natural gas to rise next week.

Thursday, 14:30. The EIA will release the weekly natural gas storage change for the week ending March 18, where the report showed that natural gas inventories declined by 6 billion cubic feet.

ERCOT Power Outages / $3000/MWH Cap Hit

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Wed, 02 Feb 2011 05:00:00 -1000

GSE Clients -

At roughly 5:30a this morning, ERCOT declared Level 3 of the Emergency Energy Alert and stated that West-to-North Zone transmission was at it's maximum capacity for all hours of 2/2/11 and 2/3/11. At roughly that same time, ERCOT and several TDUs jointly announced rolling blackouts across Texas as a load-shedding effort, and requested that electricity users limit consumption to strictly necessary lights and devices to mitigate the supply shortage. Additionally, real-time power prices have hit the new $3000/MWh cap for repeated intervals over the last several hours. Please be advised that these rolling blackouts are controlled by the TDU (transmission distribution utility). Your Energy Provider (REP) has no control over who is affected or when. If you have any problems, please contact the TDU for assistance or information. Your GSE representative is always available to answer any questions and can help put you in touch with your local utility. For further information, please refer to the links below.

http://www.ercot.com/services/comm/mkt_notices/opsmessages/index
https://maps.oncor.com/gtd_ed.asp

ERCOT Nodal Update - Dec. 10, 2010

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Fri, 10 Dec 2010 08:16:00 -1000

Nine full days of the new Nodal ERCOT market are now behind us. The transition from Zonal to Nodal went very smoothly from a reliability perspective. We want to take this opportunity to give you a brief recap of what has happened price wise over the first nine days.

The two tables below show the average price difference between Trading Hub and Load Zone. Positive numbers represent incremental costs to customers. Negative numbers represent incremental credits to customers. Houston and North have both had negligible differences in the prices between Trading Hub and Load Zones. South Load Zone has been averaging cheaper than the South Trading Hub. The West Zone continues to be the one zone to see significant premiums in the Load Zone. Some of this West Zone volatility can be attributed to short term transmission issues. However, it is likely some volatility will remain in the West for the immediate future due to the nature of the distributed renewable generation in West Texas.

Day Ahead - Hub to Zone
	(Per MWh)
Houston	$0.02
North	$0.00
South	($0.14)
West	$1.02

Real Time - Hub to Zone
	(Per MWh)
Houston	$0.03
North	($0.05)
South	($0.05)
West	$2.98

Attached you will find four graphs. One for each Zone in ERCOT (Houston, North, South, West). These are line graphs of hourly prices in ERCOT for both the Day Ahead Market and the Real Time Market. The market observed the Real Time Market clearing below the Day Ahead Market on Day One. However, as weather patterns shift this has not been a constant relationship as seen in the graphs. The table below shows average price differences between the Day Ahead and Real Time Markets. Positive numbers indicate the Day Ahead has average higher prices.

Hub – Day Ahead to Real Time
	(Per MWh)
Houston	$2.27
North	$1.99
South	$2.38
West	$5.85

Load Zone – Day Ahead to Real Time
	(Per MWh)
Houston	$2.27
North	$2.05
South	$2.29
West	$3.89

We hope to have a first look at RUC charges next week as the data begins to flow through the settlement extracts. We will provide some commentary based on our initial analysis. Please contact us if you have questions regarding the Nodal transition. - GSE Management Team

Natural Gas - New Savings Opportunity for Centerpoint Customers

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Tue, 16 Nov 2010 04:10:00 -1000

You may have recently received a letter from Centerpoint Energy regarding your capability to purchase your natural gas from an alternative supplier. Effective October 1, 2010 Centerpoint lowered their threshold level giving commercial customers who consume more than 10 MCF/day the ability to purchase natural gas from alternative suppliers. Customers taking advantage of this opportunity have seen 10-20% savings versus the utility rates depending upon volume and term.

As a result of the newly reduced threshold, we are reaching out to our clients with locations in the Houston area to discuss GSE Consulting's natural gas procurement services and how we can help reduce your natural gas costs. We will put together a costs analysis including pricing and savings projections comparing available competitive pricing offers versus the Centerpoint tariff. As with elecricity, simply sign the Letter of Authorization form along with a copy of a bill which will allow us to pull your previous 12 months usage history. Once we receive the historical data from the utility, we will put together a savings analysis and schedule a time to meet and review.

Natural Gas Transportation

A competitive natural gas supply for high-volume customers

Transportation Services
CenterPoint Energy's Transportation Services offers qualifying end-use commercial and industrial customers a choice in their natural gas supply. By providing customers access to competitive natural gas suppliers, CenterPoint Energy enables customers to maximize the value of their natural gas consumption. Through CenterPoint Energy's Transportation Services, suppliers can ship natural gas to qualified customers in Arkansas, Louisiana, Mississippi, Oklahoma, Rural Texas, and Houston including the Texas Gulf Coast.

How it works
Commercial and industrial consumers (or "end-use customers") of natural gas who are located on CenterPoint Energy's distribution system and burn a minimum of 10 Mcf per day, or 3,650 Mcf annually, may be qualified for CenterPoint Energy's Transportation Services. When enrolled in Transportation Services, end-use customers may select from a list of active, competitive natural gas suppliers who will use CenterPoint Energy's natural gas distribution system to ship natural gas to the end-use customer's facility.

Transportation Services is a choice for the end-use customer, and participation is is not a requirement for natural gas service. If an end-use customer declines to participate in Transportation Services, the customer will continue to receive the same safe, reliable natural gas sales services provided by CenterPoint Energy to all customers.

Reliable service
Transportation Services ensures the same reliable delivery of energy to the end-use customers that CenterPoint Energy has been providing customers for more than 130 years, while providing qualified end-use customers the choices they desire when making critical business decisions related to energy supply.

Letter To Clients Regarding Nodal

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Thu, 04 Nov 2010 04:23:00 -1000

Dear Valued Client,

GSE would like to make you aware of upcoming changes to the ERCOT power congestion management system in Texas. On Dec. 1, 2010, we will be moving from a Zonal congestion system to a Nodal congestion system. Although all electricity agreements will remain intact, this change could have a significant impact on your energy costs moving forward depending upon the pricing structure associated with your agreement.

Please make sure to follow up with your GSE consultant for a more detailed explanation of the potential impacts of the new Nodal system. Below are a couple of upcoming changes to discuss with your GSE representative.

As of December 1, 2010, MCPE will cease to be the default index product. The index will now either be designated by the Real Time (RT), or Day Ahead Market (DAM), depending upon the selection by your current Retail Electricity Provider.

Each Retail Electric Provider in Texas has the ability to reconcile Nodal charges at their own discretion. While each contract addresses these issues individually, it is important to understand the various components of the Nodal market that will impact your business directly (trade hub to load zone, RUC, etc.).
As always, our job is to provide you with the most up to date energy market information.

Thank you for the opportunity to work with you.

Regards,

- GSE Consulting Management

Will a Falling Dollar and Inflationary Pressures Push Energy Commodities Higher in 2010?

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Sat, 26 Dec 2009 09:51:00 -1000

As the end of 2009 approaches, many businesses are asking what is in store for energy prices moving into 2010. As we experienced in Q4 of 2009, U.S. economic indicators are now having a greater impact on energy commodities than fundamental (supply & demand) data. This trend is expected to continue through 2010. Despite record high inventory levels, energy commodities have pressed higher as investors (institutional & indivual) seek protection against a falling dollar and inflationary pressures. When speculators/investors move the market rather than fundamentals, there is a much greater risk for price volatility and price spikes as we experienced in mid 2008. Finally, an improving economy will result in an increase in demand which may further add to upward price pressure.

The below charts show natural gas and crude oil trends through the last nine months of 2009. Although crude prices are impacted more by the rise and fall of the dollar than natural gas, natural gas is considered a "clean" energy source which generators currently find attractive as the government looks to limit (penalize) plants for carbon emissions through the cap and trade policies currently being developed. This could potentially create a significant increase in NG demand in 2010 and years beyond. Thus, despite record high inventory levels, natural gas futures may continue to climb as generators scrap plans for coal plants and make the move to natural gas. Expect to see the futures curve maintain its' contango status (short term prices lower/long term prices higher) as we expect to see greater price pressure for future trading months.

In summary, the 2010 energy outlook depends greatly upon the condition of the economy. Bears = Record high inventories and a lag in demand should keep energy commodities lower. Bulls = Speculators/investors will continue to put upward pressure on the market along with an improving economy which will further increase demand.

Please talk to your GSE representative for additional information and up to date market data to help guide your business through the new year.

GSE Market Summary Dec. 09

webmaster.nospam@nospam.gulfstatesenergy.com (briand) — Fri, 11 Dec 2009 08:18:00 -1000

GSE Market Summary

Natural gas prices hit an 11 month high yesterday – inventories have declined due to cold weather throughout Midwest/East. Crude has dropped off to $70 this week from a peak of $82 in early November and a low of $46 in March. Crude has been trending up most of the year due to the devaluing of the dollar which has resulted in an influx of investment in commodities as a hedge against potential inflation. Historically, the typical trading multiple between crude and natural gas is 6X. We are currently experiencing a multiple of greater than 13X (Crude - $69.70 / Nat Gas - $5.35). Based upon historical trends, industry experts expect the trading multiple between crude/nat gas to decrease. With increased government spending, we are experiencing continued downward pressure on the dollar and ultimately inflationary risk. In summary, energy experts feel there is a high probability of natural gas prices continuing to increase in the near term (despite high storage levels) to further close the gap between the historical trading multiple.

Natural Gas is up 45% from the 7 year low on Septemeber 4th

webmaster.nospam@nospam.gulfstatesenergy.com (scottm) — Tue, 15 Sep 2009 12:26:00 -1000

From Bloomberg.com:

Analysts Predict $7.50

Gas futures are poised to rise to $6 this winter in the U.S. and $7.50 next summer because of slowing output, Allison Nathan and Jeffrey Currie, analysts at Goldman Sachs Group Inc., said in a Sept. 13 report.

“We had the major low on Sept. 4 and since then the market has had a lot of change in the way people are thinking about it,” said Beutel.

A recovery in the economy would lift demand from factories, chemical and steel plants, which account for about 29 percent of U.S. demand, and reduce the surplus.

The Commerce Department said retail sales increased 2.7 percent in August, exceeding a forecast of 1.9 percent, the median estimate of 73 economists in a Bloomberg News survey. The Federal Reserve Bank of New York’s general economic index increased to 18.9 from 12.1 in August as companies rebuild inventories with demand rebounding.

“People are repositioning themselves,” said Tom Orr, director of research at brokerage Weeden & Co. in Greenwich, Connecticut. “Goldman carries a lot of weight and that team has had a pretty good track record of making out-in-front calls on the market. The consensus seems to be that $2.40 was the bottom.”

Weeden yesterday reduced its gas price outlook for 2010 to an average of $4.25 per million Btu from $5 for the year because of the glut.

“Gas is up too much now in the short term,” said Orr. “The last time we got this high on an overbought reading was when we hit $4 at the beginning of August. It went on a big run from $3.20 to $4 and then blew off to a new low.”

Futures are above the 10-day moving average, Orr said, and other technical indicators, including Bollinger bands, signal the commodity is overbought. Prices may fall back to $3 per million Btu on weak demand and record supplies, he said.

“There will be some kind of recovery in the second half of 2010, but it’s too early to start bidding up gas now,” he said.