ENERGY UPDATE

April 22, 2012

NYMEX Updates: Friday (4/20/12)

Energy settlements: 

May NYMEX settled: $1.927

The NYMEX one-year strip $2.57, 2-year strip 3.01, 3-year strip $3.28

Calendar 2013-$3.24, 2014-$3.72, 2015 $3.99 

Last 12-month average NYMEX: $3.528 

Last 3-year average: $6.212

Crude oil: $103.05

#2 fuel oil, $3.1376

 

        May gas traded to a new 10 year low of $1.902 last week as the combination of high storage and production coupled with mild weather exacerbates the glut in the market. Future gas prices remain well below replacement costs and are a bargain buy for consumers interested in maintain low future energy costs.

        Last week the International Association for Energy Economics published a paper on the economic realities of shale gas development in the US. While agreeing with previous studies that the volume of gas reserves is enormous, they laid out a clear picture about the economics of retrieving shale gas.  Their study points out that the median wells in the Barnett require about $6 to produce the internal rate of return needed to sustain an E&P company, while the Fayetteville needs $5.40, the Haynesville $5.15, Marcellus $4.00 and Woodford $6.00.  Even the best wells in the Marcellus needs $2.87.  Their study did not address the Eagle Ford, which is widely believed to be one of the more prolific and lower cost reservoirs. Clearly, their point was that sub-$3 gas is a blip on the screen.

        Why are folks still drilling if it isn’t profitable? Majors just drill on with the understanding that the market will eventually turn in their favor.  Many independents are still drilling to hold acreage.  Some companies have access to foreign funds and take money off the top as a contract operator, so they’re just collecting fees. Meanwhile, rig utilization is on the decline and production from existing wells declines at a 70% rate in year one and another 30% in year two. 

        Please feel free to call me to discuss any questions you may have about your specific energy plan.  

  

Tony Gattuso

800-708-3086

"Youth cannot know how age thinks and feels. But old men are guilty if they forget what it was to be young." J. K. Rowling

 ENERGY UPDATE

April 8, 2012

NYMEX Updates: Friday (4/06/12)

Energy settlements: 

May NYMEX settled: $2.089

The NYMEX one-year strip $2.77, 2-year strip 3.22, 3-year strip $3.49

Calendar 2013-$3.46, 2014-$3.94, 2015 $4.23 

Last 12-month average NYMEX: $3.528 

Last 3-year average: $6.212

Crude oil: $103.31

#2 fuel oil, $3.1692

        May NYMEX gas traded as low as $2.069 last week as the EIA estimated storage at 2.479 Tcf as of 3/30, 887 Bcf higher than last year at this time and 934 Bcf above the 5-year average. The line of least resistance is lower as the industry worries about where to store all the excess gas with storage already about 60% full.  The only bullish technical signs are a stronger dollar which could push down oil prices and reduce drilling for NGL's thereby reducing associated gas production, but that's hardly a cause for much of a rally.   

        The Marcellus rig count is down to 81 with an expected decline to 45 by this time next year if gas prices stay the same.

        Coal’s share of US electricity generation is expected to fall to 35.4% this year from 42.2% in 2011 as the natural gas market increases its share to nearly 30%.

        According to the AGA, US gas reserves recently hit 300 Tcf, a 44-year high.  If low prices persist, recoverable reserves must be written down for the next update.

        US January gross gas output climbed to a record of 72.85 billion cubic feet per day in January.  

        First Utica oil and gas results are mixed with 5 wells mixed drilled by Chesapeake Energy showing lower than expected oil production, but fairly strong natural gas outpfdfsdf

Please feel free to call and discuss any Energy related topics

Tony Gattuso

ENERGY-TEL, LLC

800-708-3086

Energy-Tel, LLC UPDATE

April 1, 2012

NYMEX Updates: Friday (3/30/12)

Energy settlements: 

May NYMEX settled: $2.126

The NYMEX one-year strip $2.80, 2-year strip 3.24, 3-year strip $3.52

Calendar 2013-$3.47, 2014-$3.96, 2015 $4.26 

Last 12-month average NYMEX: $3.528 

Last 3-year average: $6.212

Crude oil: $103.02

#2 fuel oil, $3.1684

        April NYMEX gas expired at $2.191.  You have to go back to February of 2002 to find a cheaper settlement, and with the Jan-April average settlement at $2.60, you have go back to 2000 to find another average that low for the first 4 months of the year, and back to ’99 to see annual prices coming in below this level.  The "normal seasonal" pattern for the NYMEX has been a firming of prices during the 2nd calendar quarter beginning with April gas, but the April contract expiration has been lower than January in 09, 10, 11, 12, possibly reflecting a change in that trend pattern. Meanwhile the EIA storage report showed an estimated injection of 57 Bcf bringing total storage ot 2.437 Tcf as of last Friday. Prompt month gas has now traded below the 2000 lows and a move to $2 or even a $1 handle is highly probable. 

        It’s official, we’ve just experienced the warmest winter in 60 years in the lower 48 states.  That follows last December which was the coldest in 100 years.  US government scientists recently reported that February was the 324th consecutive month in which global temperatures exceeded their long term average for a given month. The last month with below average global temperatures was February 1985. So far this year, the United States has set 17 new daily highs for every new daily low. Last year, despite a cold start to winter, the country set nearly 3 new highs for every low. While no one truly understands long term weather patterns, researchers are focused on the drastic decline of sea ice in the Arctic. Because the Arctic is warming more rapidly than the rest of the planet, the sea ice cap has shrunk about 40% since the early 1980s. That means an area of the Arctic Ocean the size of Europe has become dark, open water in the summer instead of reflective ice, absorbing extra heat and then releasing it to the atmosphere in the fall and early winter. 

        Dry gas drilling has fallen 17% since mid-January, and is heading lower, with sharp curtailments in drilling for dry gas in East Texas, Pennsylvania and  Louisiana.   All but the best Barnett wells are now uneconomic at current prices.  The same is true of all dry gas basins in Texas, Louisiana, Arkansas and Oklahoma, as well as most of the Rockies. As much as 40% of the 463 dry gas rigs operating in the lower 48 states are at risk of relocating or stacking.  Meanwhile, due to abundant natural gas liquids and oil, drilling in the Bakken, Eagle Ford and Southern PA Marcellus continues on pace. Given that trend, we could see the northeast gas market, formerly the premium US market, glutted with discounted gas while the Midwest to west coast could experience shortages.  Live long enough, you’ll see it all.

        Please feel free to call me to discuss any questions you may have about your specific energy plan.

        Have a great week, and thanks for your continued business.

Tony Gattuso

800-708-3086

The analysis contained herein is based upon information Energy-tel, LLC reasonably believes to be accurate.  However, they do not guarantee the accuracy of the analysis.

Final Thoughts:

"If we got one-tenth of what was promised to us in these campaign speeches there wouldn't be any inducement to go to heaven." Will Rogers

The development of renewable energy, of course, isn’t relegated to America.  In fact, proponents of renewable energy are looking at China with a mixture of envy and distress, as that country has taken the global lead in wind and solar development.

So what does the US need to do to compete with China and other countries embracing renewable energy?

The first answer, as always, is money.  The good news is that the wind and solar energy sector in the US is either mature, or very close to maturity.  Just read the news and you’ll see stories of public and private entities building plants all across the country.  Like their Chinese counterparts, solar and wind developers see a market for reducing business energy rates and creating jobs.

So the technology is there and ready to go; the next step, therefore, is infrastructure-related.  To truly deliver on the promise of alternative energy, companies, utilities, and cities and towns need modernized transmission grids and modified zoning rules to make the promise a reality.

All across the US, state legislatures are passing laws mandating that utilities purchase their energy derived from renewable sources like wind and solar power.

In the state of West Virginia, for example, 10 percent of the utility’s energy portfolio must be purchased from a renewable provider.  That figure rises to 15 percent in 2020 and 25 percent by 2025.  California, meanwhile, mandates a threshold of 33 percent by 2020; New York’s is 24 percent by 2013.

Perhaps most interestingly, Texas met its renewable energy goal 15 years early, thanks to its effective leveraging of the tremendous amount of wind native to the state. 

In fact, wind power has proven to be so cheap, there is now a “voluntary” market for it, where utilities can purchase it even though they are not mandated by law.  This glut of cheap energy can, as one could imagine, lead to lower homeowner and business electricity rates. 

There’s just one problem – the successful creating of wind energy has come so rapidly, the state’s transmission lines aren’t sufficiently developed to transmit the power from the Western part of the state to the cities in the East.  The state responded with an ambitious $5 billion plan to remedy this problem.

Ultimately, the proliferation of wind energy in Texas – a state that, by the way, deregulated its energy market – proposes a strange and encouraging problem: too much cheap energy.

Business energy rates fluctuate. This is why negotiation is so very important. If not researched well your business could end up paying much more than is necessary for what you need. To receive a fair contract a business owner should understand his energy needs and the energy market.

Make sure you get the rates from several energy suppliers. This keeps them in competition with each other and allows you to receive the best price. Also, if possible, you should have several suppliers from your area supplying your energy needs. No one supplier should provide it all. Again, this keeps the prices competitive. It is important that you learn about any potential energy supplier’s current costs, their future costs and also what the wholesale costs are for the region where your business is located. Note any major market fluctuations and factor in transport costs..

As you gain knowledge of the market and your supplier's capacities you will become more informed. This is the way to find great energy solutions for your business’ energy needs.

A popular concept in the field of psychology and economics is the “tyranny of choice.”  The idea is simple: more choices are not necessarily better.  Think about trying to navigate the aisles of a super-market; many times people simply give up and buy a trusted brand, even though it may be more expensive or of lesser quality.

This “tyranny of choice” problem is acute in states who have undergone energy deregulation.  One is Pennsylvania, where regulators recently held a hearing about the fact that so few residents have actually switched providers, despite the potential savings as high as 25 percent.

These savings can only be generated, of course, if the overall price of electricity has dropped, and in Pennsylvania, it has.

So what are residents looking for a great PA energy choice to do?  Well, of course, they can shop around.  They can call other utilities, investigate alternative energy suppliers, and pit one utility against each other.  Or they can partner with a third-partner like Energy Tel, who can do the shopping around for you.

Energy deregulation in states such as Ohio, Pennsylvania, New York, Maine, California, Texas, and Michigan, opened up the energy market to alternative energy companies and smaller retail energy companies.  Prior to deregulation, the monopoly that larger energy corporations held on various regions of the country made launching and sustaining a small energy business virtually impossible.  Post-deregulation, the playing field altered considerably, and new companies began to appear almost immediately.

Smaller energy companies are able to offer flexible plans, simpler billing structures, and because many of them are neutral entities, they are able to find the best price and service for their customers.  It is a far more specialized and personalized way of approaching the energy provider/customer relationships and it is yielding positive results.   

Ohio energy deregulation was first passed by law in 1999 and enacted in 2001. A transition period of 5 years was written into the law to allow a smooth transition from a highly government-controlled energy policy into a more free-market operation. During this transition, price caps were still in effect while new energy providers opened shop in preparation for a competitive marketplace when price caps were to be lifted. Energy cooperatives were not forced by law to deregulate,  as non-profit organizations weren't targeted by the state government for price gouging.

Trying to balance a drastic policy change with price stability, Ohio's energy policy is very complicated and can be intimidating for the average home and business owner. There are alternative provider options available, though only larger businesses have taken advantage of the deregulation policy to procure lower  business electricity rates. Many small businesses and homeowners do not have the time nor resources to research how the laws apply to them and few have made a change to another provider.

There are professional services available for those seeking more competitive energy rates for their home or business. With expertise in Ohio's energy policy and a deep understanding of the marketplace, they can find the best Ohio energy choice for your home or business.

As any follower of energy deregulation will tell you, the pace of deregulation is generally slow, and the results always vary by state.  After all, Maryland energy deregulation is not the same as that in Pennsylvania or Ohio, due to a host of complicated legislative reasons.

All that matters, in the eyes of the general public, is continuity of service and, more importantly, lower homeowner and business electricity rates, which after all, are two of the main benefits cited by deregulation proponents.

And while progress may be slow in Ohio, Maryland, and Pennsylvania, there is cause for cautious optimism out of Texas, where over a decade into deregulation, some positive signs are emerging.

For example, whereas the retail electricity market was previously monopolized by a half-dozen regulated utilities, now over 40 electricity providers vie of customers.

Perhaps more importantly, customers are “voting with their feet,” as it were: according to the Electric Reliability Council of Texas, most businesses and residential customers have switched away from the “old” utility providers and to the new ones who emerged in the wake of deregulation.