Is the Slow Start to the Hurricane Season an Opportunity to Lock in Fixed Rates for Natural Gas and Electricity?
In the August 30th Energy Update, I said the consequences of a major storm this year impacting the price of
In the August 30th Energy Update, I said the consequences of a major storm this year impacting the price of
In the August 30th Energy Update, I said the consequences of a major storm this year impacting the price of Natural Gas is more dire than normal because our present administration’s energy policies caused supplies to be at least 12% below the 5-year average by the middle of September, and the calm before the storms may be about to end.
But 3 weeks later, no major hurricanes have threatened our energy assets in the Gulf of Mexico; therefore, risk premium built into Natural Gas prices as we entered this year’s hurricane season is being unwound:
After reaching $9.98/MMBtu on Aug 23rd, a price justified by the three risk factors discussed in the May 31st Energy Update, Natural Gas prices have declined 26% reaching a low of $7.41/MMBtu this morning.
The near-term decline was primarily based on the slowest start of the hurricane season in more than 25-years, which was counter to NOAA and other weather prognosticators’ forecast of a very active storm season.
In today’s report, I will explain why I believe the pullback of Natural Gas due to this year’s slow start of the hurricane season is an opportunity to lock in fixed rates for Natural Gas and Electricity.
The short-term risk is a major storm in October will impact our energy assets in the Gulf of Mexico resulting in higher Natural Gas prices. Our supplies remain very tight and are projected to be 10% below the 5-year average as we enter the winter heating season, and a major storm would exacerbate the situation.
Although we have been blessed by a quiet start to this year’s storm season that can change very quickly in October. October is not only a very active month in terms of tropical activity, but it usually results in a shift in where most hurricanes develop across the Atlantic.
“As the seasons change and we get into October, the number of hurricanes that form in the center of the Atlantic typically starts to decline, and we become more concerned about areas in the Caribbean, Gulf of Mexico and western Atlantic,” said AccuWeather Senior Meteorologist Alex Sosnowski.
And the slow start to the hurricane season could be problematic since no storms have entered the Gulf of Mexico to draw energy from warm Gulf waters leaving them above normal for this time of the year. An October storm this year would have lots of energy to quickly become a major hurricane impacting our energy assets in the Gulf of Mexico, and Natural Gas and Gasoline prices would likely skyrocket from present levels.
Therefore, in the short-term, I believe the recent pullback of Natural Gas is an excellent opportunity for hedgers to lock in Natural Gas and Electricity long-term. But to fully understand why I believe the recent pullback is an excellent opportunity you must look at Natural Gas prices from a long-term perspective.
My April 11th Energy Update explained in detail why our present administration’s move towards green energy and away from fossil fuels is returning America to a period of high prices and volatility:
The present administration’s commitment to green energy increases the probability the next three years will be characterized by wild swings in energy prices, and securing fixed rates when prices pullback will be in your best interest.
As I explained in previous reports, Natural Gas prices are lower in the forward markets from 2023 thru 2026; and we recommend securing longer-term agreements that include the lower prices from 2023 thru 2026.
And as explained in recent reports, when appropriate our consultants will also help you secure blend and extend agreements to take advantage of an even sharper longer-term pullback if and when it finally comes. The bottom line is we are living in a period of great uncertainty, and we are here to help you navigate these perilous times.
Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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