During the past decade the demand for natural gas across the nation has skyrocketed. Stricter air pollution standards, more efficient natural gas power plants, and improved natural gas drilling methods (e.g., fracking technologies) have made natural gas the fuel of choice for new electricity generation. However, because natural gas is traded on short-term spot markets, its price can quickly change. In 2008, natural gas experienced a significant price spike, which had prices sitting around $13/MMBtu.

Since then, natural gas prices have fallen to new record lows.

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This drop in price has been a great opportunity for companies in competitive energy markets to hedge their electric and natural gas costs by locking in contracts at comparatively low prices.

Why is this relevant to you? Since natural gas prices drive electricity prices in many competitive markets, and these natural gas prices are set by volatile, short-term spot markets, companies are now exposed to risk with regards to their electric costs.

And, with the prospect of even more regulations on pollution and fracking, and potential decreases in supply as producers try to control price, natural gas prices could again climb. Will we see $6/MMBtu, $8/MMBtu, or even $13/MMBtu natural gas anytime soon? No one knows.

Since electricity is an essential costs to most businesses, it makes sense to manage your risk by hedging your costs and locking in favorably low prices. To maximize your opportunity, it pays to work with someone who understands the market and can act quickly for you on your energy management strategies. It pays to hire an energy consultant.

Contributors:

David Booty, President
Brian Mente, Portfolio Analyst
Sami Hage, Business Development Analyst

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