Headline of the week, from a local Midwest paper:

Coal To Sustain We Energies Bills
Rising Costs Offset Cheaper Natural Gas

Less than six months after the highest natural gas prices in history, with no ceiling in sight, natural gas prices now sit comfortably at a level where costs savings are offsetting the rising cost of….coal. The rules of the energy market are being rewritten on a weekly basis.

It’s important to understand this when you look at the NYMEX and storage figures. There was a time…a pretty recent time, in fact…when you could use them to track trends and make reasoned predictions for natural gas and electricity pricing. But so many competing factors are now at work in the energy market, some in synch with the fundamentals of the market and some completely in their own sphere, that no one is making long-term bets with confidence.

NYMEX is still useful to you. If you’re ready to consider a move to save on your energy costs, the current figures give you a good idea of where prices is – right now (Remember, the NYMEX price is the cost of just the natural gas itself: there will be a sometimes baffling array of transmission and distribution charges to add before you get to the natural gas price you’ll be offered, and similar charges and fees before you get to an electricity rate offer. Our clients rely on Cost Containment Intl. to help them wade through the figures to find the best price.)

The Gambler, he broke even

Last week we talked about hedging. This week it’s all about setting boundaries. Hedging is one source of security in a volatile, unpredictable market. The other is figuring the price you can comfortably afford for your long-term energy needs: one year, two years, or more, then getting that price, rather than chasing an elusive “low.”

As we’ve said before, the best gambler is always the safest player at the table, because he knows when to take his winnings, or pre-empt losing, and walk away from the gambling. Cost Containment Intl. wants to give you a place at, or away from, the table.

Check the NYMEX

Deal of the week for November 20, 2008 -

Natural Gas: we locked a fixed rate for 16 months covering 2 winter periods (2008 & 2009). We got him a price that was below the historical 4-year average NYMEX. He now has the “insurance” that his natural gas risk is stabilized for that term. Savings and stability in one package. You might be next week’s featured deal: give me a call and let’s see what we can do.

Bullish vs. Bearish

Hands up – how many of you actually understand the jargon used to describe trends in the Natural Gas Market? (That’s the great thing about the Web: no one is watching you.) For those who are wondering:
Bullish means the market is being PUSHED upward. Good for investors, not so good for you.
Bearish means that the market is being PULLED downward. Investors are not so happy, you should be thinking bargains.
Problem with both these terms is that they are used to describe “trends’ in the market, and at the moment, a “trend” last for about five minutes. Volatility is synonymous with the Natural Gas Market. Customers ask me to please lock their price when the market hits “absolute bottom”. That’s like throwing a snowball at a speeding train and crowning the engineer. Our goal is to hit the train…and not to still be holding the snowball as the train fades into the distance.

Look back at my deal of the week: it’s for sixteen months. Right now, everyone is following the five-minute trends. I’m working for your long-term security. Those sixteen months will pass, and we’ll negotiate another deal, and keep finding the best price for many, many years to come. To stick with the “snow” theme: skiing is one of my favorite winter sports. I am in the habit of talking myself through some particularly hairy runs, by asking myself: “what the heck are you doing here?”…and answering: “I’m going to conquer the next mogul, and the next, and keep going until I get to the bottom.” There’s still plenty of hill left if you can keep thinking past the bumps.

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The serious gamblers always play craps. Why? Because the right gambling strategy can bring them closer to even odds with the House than any other game. This happens because craps allows you to place multiple bets on the same roll, including placing bets both “for” and “against” at the same time. This is called “hedge” betting.

The term “hedging your bet” dates back to a time when hedges were functional instead of decorative, made of sharp bramble bushes that kept cows in and poachers out (interesting side note: the term “stock” comes from the same hedges…in the 17th century, sales were recorded by cutting a stick of bramble in half, with the buyer receiving the “stock” and the Exchequer the “counterfoil”. You put the two together to prove ownership.) The hedge constrained you, but also kept risk at bay.

We bring up hedging because of the turn that NYMEX prices took this week. For the past several weeks natural gas had ignored the volatility of other markets, with prices being dictated by the fundamentals of supply and demand.

This week, the market forces came roaring back.

Oversupply and mild temperatures were contributing factors, but this week’s sharp price drop back below $7.00 was natural gas finally succumbing to the pounding that Wall Street and others commodities took all week.

Predictable? In retrospect, sure. But pretty much everyone was caught off guard. In the current market, it seems like one price predictor holds sway for the week, then gives way to another the next. It’s not just a case of reading the signs…it’s knowing which sign to read and which to ignore.

Your energy suppliers are looking at these same prices and seeing the same unpredictability as they calculate what plans and prices they can offer you. Everyone is, in essence, at the same craps table. The difference is, they know how to hedge their bets. Do you?

Mind the brambles

No gambler is ever 100% right. The successful gambler, however, is never 100% wrong. For your energy provider, their hedge comes from buying futures on the NYMEX in both a “long” (you win if the price goes up) and a “short” (you win if the price goes down) position, and from buying low and storing for times when the market is high.

Have you got hedges? You bet. But you’ve got to know the game.

For natural gas, you can play the market the same way as the providers by putting together a plan that combines a locked percentage with a percentage that rides the market. You can also buy and store…you can even buy, store and sell. Like the best gamblers, the best natural gas savers aren’t letting their bets ride on a one-price plan.

For electricity, your hedge comes from being able to respond to markets, and locking at the right spot. You’ve also got a card up your sleeve: controlling your use. There are substantial savings to be found from knowing when to hit the OFF switch. It’s all in the timing.

What this means to you. The best gambler is always the safest player at the table, because they never lose more than they can afford, and they’re ready to take their winnings when they come. Cost Containment Intl. wants to give you a place at the table.

Check the NYMEX.

Here’s an interesting fact that pretty much sums up the American economy of the past year: Ford is rehiring. For their factory that makes F-150s. Because now, with gas down around $2.25 per gallon, people are buying pickup trucks again.

Apparently, a month is enough to make people forget four-dollar gas, and to assume that four-dollar gas will not return. Buyers and sellers are developing very short memories.

Daily Dow swings in the $300-$500 range have become so common in the stock market (such jumps happened on Monday, Tuesday and Wednesday of this week) that we don’t even blink any more when we read about them. No one, it seems, is thinking past tomorrow.

That’s causing a lot of people to lose. There are very few winners in these up-and-down markets. Other, cooler heads, who are thinking past the daily returns, are taking the steps now which will benefit them down the longer road.

Long term factors are a powerful force. They always have been. They always will be. And this week, the inevitable shift to winter pricing is having its inevitable effect on natural gas prices. Despite the volatility of other markets, and the continuing drop in oil, natural gas rose steadily this week. The market fundamentals for natural gas may have seemed to be in hibernation for the past few months, but they’re still there, and will be when the economy stabilizes again.

What this means to you. Have you got a long-term plan for your energy? Do you have any idea how you will be managing energy costs in 12 months, 24 months, or longer? Cost Containment Intl., is helping our customers get past short-term thinking. That’s part of how we do business.

Part of the long term will be renewable energy. Looking ahead, the only way to truly hedge your energy costs against volatile fuel markets is to reduce your reliance on them. Green energy, like market fundamentals, is an inevitable part of everyone’s energy future.

A lot of people don’t want to hear about it, or think about it, right now. That’s the short term talking again. Green energy is too expensive. The economy won’t allow it. You can’t afford it right now.

We disagree. There are innovative ideas at work, and Cost Containment is actively involved with them. In fact, this week we got one customer a few kW of solar on their roof as part of a contract that significantly lowered their energy costs. The short-term cost to them for the solar roof? Nothing. If you want to know how we did it, you should give us a call.

We’ll be talking more about new approaches to renewable energy in future newsletters.

Check the NYMEX.