Natural Gas Procurement: Timing is Everything
Although natural gas prices are more stable now than they have been in a decade, energy managers can still save their companies big money by creating a procurement strategy and timing their purchases.
“We’re looking at $3-$4 per dekatherm (Dth) versus a spike to $15 in 2008, said Joe Bores, manager commodity services desk, natural gas with Hess Energy Marketing. “But the market traded down to $3.12 from $3.80 recently. At 70 cents per Dth, that’s meaningful dollars for large energy purchases,” said Bores. “It depends how intense of usage we’re talking about. There’s urgency to pay attention to those details.”
Bores shared his insights with other speakers for the Energy Manager Today webinar “What Energy Managers Need to know about Procuring Natural Gas: Guidance for 2014 Natural Gas Contracts.” (available on demand).
Daniel Fritts, manager national accounts with Hess Energy Marketing, outlined four basic pricing strategies energy managers can use to procure natural gas:
- Fixed price – the most conservative approach
- Triggers – lock in a price, but set triggers if prices drop below specific amounts
- Index Price – tied to a publication that produces a specific price at a specific time
- Float – constantly adjusts with the market.
“Triggers are great for a company that has time constraints; that doesn’t have time to monitor the market on a daily basis,” said Fritts, adding that some industries purchase energy based on what their competitors are doing. In those cases, the float strategy works best.
The important thing, according to Fritts, is for energy managers to understand their companies’ energy strategy and to buy against that strategy.
As for a buying timeframe, Hess customers are looking at the market anywhere from 30 days to 6 months out, on average. “Some more sophisticated customers are looking at 2015 and beyond,” said Fritts.
In terms of fixed-price gas contracts, Hess sees the longest-term contracts being about three years. Beyond that, the market becomes less traded; therefore the prices are not acceptable to customers.
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