Q&A: Mitigating Risk in a Volatile Energy Market

For many businesses, the current energy landscape has changed the way they approach their energy management, going so far as to put a serious strain on some businesses, with others looking to minimize budgetary risk as much as possible while still aligning with sustainability goals. While there is no one-size-fits-all approach or answer, it’s wise to take a comprehensive look at your organization’s particular needs and goals. APPI Energy Vice President of Market Intelligence & Analytics, Dan Forgacs, provides some key insights into what’s causing market volatility, as well as procurement strategies and energy solutions available to help mitigate that volatility.

Q: It’s been a volatile year to say the least for the energy markets, what are a few of the contributing factors?   

A: Yes, it sure has. In fact, 2022 has seen the highest volatility for Henry Hub natural gas prices in 20 years. The war in Ukraine, rebounding economic conditions and hotter-than-average summer temperatures greatly increased demand for U.S. natural gas after years of gas producers scaling back on drilling operations. On the flip side, an explosion and subsequent closure of a liquefied natural gas export terminal increased domestic gas supply for several months, pushing near-term prices lower.

Q: Do you anticipate a relief in energy prices anytime soon?

A: It will be a tough and expensive winter for natural gas users, particularly in the northeast, due to the need to compete with high European prices for liquefied natural gas supplies.  Electricity prices this winter will also be much higher than last year, due largely to high natural gas prices but also the fact that many coal plants have retired and renewables are not quite ready to pick up all the slack. Still, weather is the single largest driver of short-term natural gas prices so a warmer-than-average winter could help bring lower gas and power prices.

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As a reminder, the energy markets have been extremely volatile in 2022, with 2023 shaping up to follow suite. For your members in deregulated states, it may be a good idea to take another look at your competitive energy supply options. Utilities in many areas of the country are warning their customers of significantly higher prices for the coming winter, more than doubling in some cases. There are unfortunately many bad actors in the energy brokerage space, so we also encourage you to remind your remembers the value of utilizing a trusted source. A no cost, no obligation call with our team is a great first step. Rest assured, if we do not see an opportunity for savings or improvement of your members’ current energy management strategy, we will advise them to stay the course. Best case scenario, they embark on a path to energy savings and improved energy management. Worst case scenario, they walk away knowing their organization is already on the right track. For your members not available for energy choice, do keep in mind that we can still advise on key strategies for improving their energy efficiency and sustainability efforts.

 Finally, please see our most recent edition of The Advisor, which includes the latest market updates.