supply side energy trends · • saudi arabia is pumping near a record of 10 mm bpd • analysts...
TRANSCRIPT
Supply Side Energy Trends
Rakesh ParasuramanLuthin Associates Inc.
March 25, 2015
Cost Drivers
2
Energy CostSupply & Demand
Fundamentals
Geo-Political Landscape
Weather
Regulatory & Environmental
Economy
Generation Diversity
3
• Fuel mix impacts price volatility• Generation mix is closely related to
Natural Gas• In NY/NJ, electricity prices are
strongly co-related to natural gas prices
• Less diversification increased volatility
Source: NYISO Power Trends
Economic IndicatorsIndustrial Production
4
Source: NES
US
Economic IndicatorsGDP Growth %
5
Source: NES
US
Economic IndicatorsUnemployment Rate
6
LNG Exportation
7
Source: NES
• There are environmental regulations on coal from the EPA that go into effect in 2015 that will have an impact on the electric and gas markets.
• Compliance will be met through a combination of : – Retirements– Renewable power generation– Shift generation to favor natural gas instead of coal– Demand side reductions (energy efficiency programs)
Coal
8
• Saudi Arabia is pumping near a record of 10 mm bpd• Analysts forecast market surplus to expand from
900,000 bpd to 1.3 mm bpd• Oil prices have ranged between $43 -$54 this year• In 2008, oil prices peaked at $146/barrel; July’14 was
the last time prices were > $100/barrel• A stronger dollar, potential interest rate hike and slow
growth may contribute to prices staying at low 40’s
Oil
9
Gas Storage Levels
10
Storage levels at 53% higher than a year ago and 13% lower than 5 year average
Weather Update
11
Source: NOAA
• NOAA issued spring forecast• Continued colder temperature
forecasts for the East and warmer across the West
• 6-10 day forecast calls for below average temperatures in the Northeast and above average temperatures in the West.
• The 11-15 day forecast predicts moderate temperatures across much of the United States
PJM: Electric Price Trends
12
NY Zone J: Electric Price Trends
13
Natural Gas Futures PricesApril 2015 – March 2016
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$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
$ / D
ekat
herm
Forward Month
1/1/11 1/1/12 12/19/14 2/13/15 3/13/15 3/20/15
Natural Gas Futures
Demand Response
15
Order 745
• FERC cannot set compensation for demand response at the retail level• Currently, proceedings before the Supreme Court will determine the outcome• A victory by the generators will deflate revenue to DR providers and their
customers• ISO/PJM policies operate at the interstate level and are moderated by FERC.
Utility run programs are moderated by respective PUC’s. • Order may limit customer participation at the ISO and may result in DR offered
only at an utility level• Generators believe no long term increase in capacity costs is anticipated;
however, DR providers disagree
Energy Delivery Issues
16
• Declining System Efficiency Concerns (NYS)• During the past decade, annual system load growth in NYS was 2% • NY State load growth is expected to be 0.16% per year thru 2024; Peak
load is estimated to increase at 0.83% per year (Source: NYISO Power Trends 2014)
• Aging infrastructure (30-40 years old)• Expected to drive up T&D costs; Con Ed has filed for an electric rate
increase in Winter 2015 to be effective early 2016
• Reforming the Energy Vision (REV) Proceedings (NYS)• Proceedings managed by NYS PSC; expected to conclude this year• Designed to optimize electric distribution and reliability• Encourages distributed energy resources in lieu of utility distribution
investments• If successfully implemented, can result in lowering utility delivery bills
Energy Purchasing Process
17
Risk Profile Analysis
Hedging Strategies
• Level of Market Exposure
• Price Certainty vs. Float
• Client Education
• Identify Market Trends
• Fixed Prices
• Variable Price (Tied to Index)
• Hybrid (Fixed/Shaped) Block
Price
• Portfolio Approach
Energy Purchasing Process
18
19
Block & Index Strategy• Fixed (24 X 7) Base Block• Shaped Blocks
•On/Off Peak Blocks•Summer/Winter Blocks
• Load following block
Recent Deal Structures
20
• Fixed Price• 2 to 3 year terms
• Fixed Price Tranches• 100% Portfolio - 1st year• 66% Portfolio - 2nd year• 33% Portfolio - 3rd year
• Load Following Block & Index• 3 year purchase horizon• 1st year - 75% summer/winter block; 25% shoulder• 2nd & 3rd year – 50% summer/winter block; 25% shoulder
Contracts & Market Timing
21
Contract Negotiations
Market Timing
• Pre-Bid Contract Scrutiny• Bandwidth / Material Usage
Deviation• Line Losses• Balancing Pool• Uniform T & C’s
• Trend & Technical Analysis –Lifetime Avg., Gas/Oil in Storage
• Production, Capacity Constraints
• Seasonal – Hurricane, Heating Season Demand, etc.
• Email-Based RFP’s with specific expiration date
Procurement Tools
22
Post & Respond RFPs
Online Reverse Auctions• Real-Time negotiation between purchaser and pre-qualified suppliers• No charge for supplier participation• Maximize price compression through feedback to suppliers• Auto-Extension functionality – A bid entered within the last two minutes of
an auction will extend the auction by two minutes.
Due to the volatile nature of energy markets, both processes require seller and buyer to be ready to execute contracts upon reaching buyer’s reserve price.
Procurement Tools
23
Rakesh [email protected]
Luthin Associates535 Main St, Allenhurst, NJ - 07711
Telephone:(732) 774-0005
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Questions