Is your business prepared to deal with electricity price shocks?

Is your business prepared to deal with electricity price shocks?

The price of gas has more than doubled in the past year.  In the Northeast and Midwest, over a third of all electricity is generated from natural gas – consequently – we are starting to see electricity price shocks. 

Among the reasons for the spike in natural gas prices are new restrictions on drilling, ESG (Environmental, Social and Governance) and its imposed limits of fossil fuel companies to the capital markets, increased LNG (liquefied natural gas) exports, capital markets requiring free cash flow from drillers, a dramatic increase in input costs, and increased demand in the United States due to the economic recovery following the pandemic. With production idling during the pandemic, the United States gas stockpile now sits 7 percent below average while Europe is 20 percent below average.

According to an October 4 analysis by Reuters, the situation is only going to get worse in the U.S., where rising prices have yet to provide the same headaches as the tripling of rates Europe and Asia experienced during the last year. According to the article by Scott Disavino, the U.S. “has been shielded from the global crunch because it has plenty of gas supply, most of which stays in the country since U.S. export capacity is still relatively low. The benchmark U.S. natural gas contract has been rallying, lately hitting seven-year highs, but its $5.62 per million British thermal units (mmBtu) price is a far cry from the $30-plus being paid in Europe and Asia.”

“However,” Disavino writes. “The U.S. market is worried about the coming cold.”

The National Energy Assistance Directors Association is predicting natural gas could be as much as 30-percent higher for consumers this winter. Newsweek recently quoted NEADA executive director Mark Wolfe as saying “Consumers got used to very low prices last year, because with the pandemic everything was shut down,”

“Now, everything’s coming back online, industry is returning and natural gas is being used again in very large quantities. And that’s pushing up the price.”  All of this leads to much more expensive electricity for US customers. 

Fortunately, in many states, electricity consumers have two great tools to mitigate high electric costs.  They can install solar systems on their property to access less expensive electricity.  And, they can solicit bids for the balance of their electric power to take advantage of deregulated power markets.  Working together with energy procurement specialists with which we have existing relationships, McDonald Hopkins can help your company find ways to avoid some of the impact of rising natural gas prices and lower your electric bill.

It is more important than ever for companies to review their electric profile. If they are not shopping for better deals and investigating alternative sources of energy, this is the time.

For more information, please contact me any time at the email or phone number below.

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