RD Energy Stay Current Newsletter: April 2024

RD Energy Stay Current Newsletter: April 2024

Key Drivers

  1. Extremely mild winter
  2. Extraordinarily high natural gas storage levels
  3. Reduction of daily natural gas production by U.S. producers
  4. Fears of higher natural gas domestic and global demand in early 2025
  5. Fears of PJM peak day delivery short-fall

Commentary

Many of our clients fixed new electric and natural gas agreements in 2021 prior to  2022’s historically high price surge.  Even though wholesale energy prices for both commodities have fallen off 2022 extreme levels, energy prices are still well above 2021 price levels.  In fact, due to the current over-supply of natural gas after one of the warmest winters on record, wholesale natural gas and electric prices have fallen sharply.  However, wholesale prices for 2025, 2026 and 2027are much higher than 2024 prices, since the current over-supply isn’t expected to continue into 2025 and beyond.  If your business, school or community was lucky enough to fix an energy supply price in 2021, you know the heart burn of seeing renewal prices coming in much higher now.  Adding to the difficulty in making an energy procurement decision regarding how long to fix a new price is the fact that year over year commodity prices are higher the longer into the future you go.  This puts energy decision makers in a very difficult position:

 

  1. 12 month fixed rates are the lowest so while very tempting is this the best choice?
  2. Current energy supply contracts might not need to be renewed for 8 – 18 months.  Should we go ahead and review wholesale energy buying pros and cons to determine whether to buy now or wait? Yes, probably!
  3. Wholesale electric and natura gas supply and demand fundamentals are always changing making it very difficult to make the right procurement decision at the right time.  Who am I trusting to provide me timely and accurate energy data and advice?

 

Are you optimistic that energy prices will drop over the next year or are you a pessimist expecting that energy prices will trend up as the U.S. EIA forecasts?

Every business, school or municipal community are looking for ways to reduce costs at the same time the wholesale energy commodity costs are rising, which is putting many in a decision quandry.  Do you wait to buy energy until closer to your supply contract renewal dates hoping prices fall? What if prices do the opposite?  Do you buy short-term hoping energy prices reverse course and fall longer-term?  It could work, but it’s a gamble.  Do you fix a price for more than 12 months, but not exceptionally long in hopes that energy price volatility will eventually work in your favor sometime in the next 18 – 24 months?  Sounds like solid and sensible plan.   We recognize every energy decision maker is different and views the data available with different glasses.  The time we’re in right now is an extremely difficult time to understand when and how long to procure energy.  How hot will this summer be and how cold will next winter be?  How much impact will LNG export capacity growing 40% as soon as Q1 2025 make on energy prices? What will be the impact on PJM and FERC negotiations on the slowly eroding fossil fuel sourced power generation vs the growing renewable energy sourced power generation have on electric prices, and more importantly, electric deliverability during peak usage hours during the hottest days or summer or coldest days of winter?

 

Your energy partner RD Energy is constantly striving to be on the leading edge of energy data and constant change.  Armed with a strong portfolio of electric and natural gas suppliers we’ll continue to help our clients buy strategically and timely as well as using programs like Demand Response and Peak Load Management when possible to help you manage your electric and natural gas spend.  If you have questions at any time, please feel free to contact us. The next 12 months in the energy world could be a real roller-coaster, fast changing and price volatile time. We’ll make it through together!

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