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Winter 2022 Market Update
Market Update: State of the Natural Gas World
By Gus Fromuth
President & Managing Director
As we transition to the heating season and enter the period when the demand for natural gas is typically at its highest and its price at its most volatile, it may be useful to bear in mind: (1) what are the set of circumstances that got us here, and (2) how long are they likely to persist and keep upward pressure on prices?
As a reference point, the US gas spot price reached $6.37 per MMBtu in early October 2021. That’s $4.45 (+232%) higher than a year ago. When you back out the impacts of Hurricane IDA, prices for the first half of September 2021 were $2.81 (57%) higher than a year ago.
Recent financial practices in the oil and gas industry were characterized by aggressive drilling exploration and production activities with little regard for either the expense or achieving return on investment. This had the effect of flooding the market with product, culminating with a significant low in natural gas prices in June 2020, coinciding with the pandemic economic shutdown. The lesson learned by the investors whose money was funding the exploration and production (E&P) activities, and the banks who were aggressively lending to this, was to put away the checkbook and impose some discipline on their partners.
From this we draw the conclusion that the sudden reversal of investor/bank sentiment towards underwriting the industry had its origins in the sharp reduction in consumption occasioned by the pandemic. That, coupled with the cash burn, paused the rapid gains in bringing gas to market.
In the same timeframe, other factors emerged to help push up US demand for gas. An unusually hot summer in 2021 in the US boosted demand and the sizeable growth of a new market for US-originated natural gas (namely, exports to Europe and Asia) increased demand.
In just a year’s time, gas exports in the form of LNG have increased from 4.5 bcf/day in July 2020 to more than 12 bcf/day in August 2021. This has caused gas inventories to be depleted and pulled up prices. In addition, with our somewhat new customer, Europe, a severe natural gas shortage has emerged.
A closer look at why their price of natural gas has soared to over $35/MMBtu (US equivalent) provides important lessons for how the US should proceed:
- Europe drained its natural gas storage during the colder-than-normal Covid winter of 2020-2021.
- Storage refill during the 2021 summer was off pace of expectations due to reduced imports from (Europe depends on imports for 77% of its annual natural gas needs).
- European-wide mandates to phase out coal plants over the past 10 years left it without dispatchable-ready plants to take up the slack created by the natural gas shortages. On top of this, record high carbon prices (which are mandated to be tacked onto the coal price) made moving to a coal burn less attractive because it pushed up the cost of switching to
- Wind generation, which has grown significantly as a source of power for Europe, was stilled by an absence of wind coincident with the other impacts described
These pressures notwithstanding, the lure of even greater premiums for US LNG in Asia where buyers are paying $55/MMBtu is creating pull on the US Henry Hub price. By and large, the US prices are the cheapest in the world and as foreign markets scamper to fill storage, we will continue to feel the influence of these offshore prices. With delivered prices well north of $55/MMBtu the netback (profit) to US sellers is in the $25/$26 MMBtu range.
In short, the US natural gas market is no longer ring-fenced by North America’s land mass.
Just to give some further perspective on the cash and carry trade, the number of LNG vessels transiting the Panama Canal have surged from a low of 163 in 2017 to 498 (thru August) in 2021.
The arrival of US gas on to the world stage comes at an important juncture. The UN Climate Conference (COP26) was held in Scotland, November 2021, and the expectation by many market participants was that natural gas would continue to emerge as the consensus fuel source for the world’s energy transition. Anyone on the producing end or inhabiting any of the many business process steps between extraction and final end use, this could be very good news for one’s P&L. However, anyone at the point of final sale, can expect prices that reflect the new, zig-zag journey of added costs accumulated along the way.
In media coverage for COP26, there were high expectations that countries would commit to policies that further the energy transition through exiting use of fuels with the highest carbon content and adopting in their place fuels with lesser or zero carbon content. Countries such as India, China, and South Africa, where the incumbent fuels of oil and coal are dominant, will be incentivized to convert to systems that use natural gas as a primary fuel. These are not small countries and are among the largest in this category. The barriers encountered by these countries to accelerate their adoption of gas as a transition fuel will be diminished by a coordinated, world-wide effort to make gas accessible and plentiful.
In addition to spurring the expanded use of gas, actions emanating from COP26 will likely include adoption of a carbon pricing model over time to reflect the (financial) environmental externality associated with using carbon-content fuels. Hence, coal, oil, and, yes gas will all be price-penalized for their carbon content to discourage or diminish their roles as primary fuel sources.
I bring all this to your attention because the implications for future pricing of natural gas are significant. A structural change in the cost of this fuel to a world where its consumption may grow by leaps and bounds is something our markets should be preparing for.
Availability should not be a concern. North American reserves are abundant as are those in the former Soviet Union and throughout the Middle East. However, combine the abundance of supplies in the US and Canada with the transit-friendly infrastructure enabling delivery to export markets, and there is plenty of evidence that we may be in for a prolonged period of higher prices.
COP26: Client Updates and Impacts
By Jack Martell
Renewable Program Manager
The 26th Conference of the Parties, also known as COP26, was the 26th United Nations conference focused on Climate Change. Held during November 2021 in Glasgow, Scotland, COP26 brought together over 200 nations in hopes of continued acceleration in the fight against climate change. The key goal of the conference was to find solutions, through carbon reduction measures, that will keep global temperatures limited to 1.5 degrees Celsius above pre-industrial levels by the end of the century. This resulted in the signing of the Glasgow Climate Pact, a document warning that significant action is needed to mitigate irreversible climate damage and requesting commitments from participating nations to take swift action to reach these goals. Many viewed this conference as a final chance at creating a strategy to stop irreversible climate change over the next decade, resulting in 151 of the participating nations submitted new climate action plans, all pledging to reduce greenhouse gas emissions significantly by 2030.
Here in the United States, COP26 is expected to continue to impact business operations and opportunities. It is expected that further commitments to reducing greenhouse gas emissions will result in significant federal incentives for corporations willing to increase their efforts toward sustainability. We expect to see increased renewable energy incentives from both the Federal and State level, including further tax incentives for renewable energy projects, efficiencies upgrades and emissions reduction measures.
COP26 brought the concept of Net Zero further into focus and will increase the importance placed on achieving net zero for energy users in the United States.1 While this is an intriguing concept for most business owners or leaders, the difficult question is how to get there. Having a realistic plan is an important first step in achieving these goals and ensuring that plan is attainable is even more essential. Businesses who can take steps in this direction will have a leg up from a consumer and investor standpoint. They will also be more prepared to tap into the financial incentives associated with emissions reductions that are likely to increase over the next decade.
Business resiliency is also expected to be important in coming years as climate change impacts are expected to contribute to further climate hazards. Businesses that have resilient energy systems, including onsite renewable generation, will be well equipped to handle these circumstances while also meeting emissions goals. Electric fleets are a part of this consideration, and when powered by renewable generation can be entirely protected from shifting fuel costs.
The Freedom team welcomes the opportunity to learn about your goals and help create a plan to reach them. We have several solutions that can be tailored to help your facility become more efficient, reduce emissions, or tap into renewable energy generation.
HB315 Market Opportunity: Freedom Energy and Hull Street
By Jack Martell
Renewable Program Manager
If you are a municipality in New Hampshire, you have a tremendous opportunity to benefit by getting paid for using electricity. Even better, embracing renewable power that can support your city or town’s sustainability initiatives and increase local renewable generation. There is nothing to buy and nothing to install.
You’re likely aware by now that on August 26, 2021, Governor Sununu signed HB315. Under this bill, the New Hampshire legislature expanded group net metering to include qualifying renewable generators that can produce between one and five megawatts per hour, so long as they sell their output to municipal entities such as towns, cities, school districts, charter schools and counties. Utilities are forced to buy the generator’s output at the standard offer rate, which is about double what these generators were getting in the open market. To qualify for this benefit however, the generators are required to partner with a municipality (town or city), school district, charter school, county or entity that is funded by the municipality.
The net metering expansion is poised to benefit both renewable energy generators and municipal energy users alike. By pairing with a local renew- able generator, New Hampshire municipalities can realize significant energy cost savings while supporting local renewable resources. The renewable generation facility does not have to be physically located on the municipality’s premises, and if the facility was built and in service prior to January 1, 2021, can be located anywhere within the applicable utility territory.
Expanding the net metering limit to 5MW makes large scale renewable energy projects financially viable due to generous utility incentives and will create a significant injection of renewable energy into New Hampshire’s utility infrastructure, increasing system resiliency and reducing carbon emissions.
Under HB315, receiving the net metering benefits of local renewable energy projects is financially risk free. In addition, it does not require behavioral changes from municipalities. When a municipality enrolls as a member in an eligible project, it allows the renewable asset to receive standard offer payment for the generated electricity offset by the municipality, providing a significant economic boost to these projects.
Freedom Energy has partnered with local hydroelectric owner operator Central Rivers Power, giving our New Hampshire municipal, SAU, and governmental clients exclusive access to approximately 40 million kwh of eligible net metering generation and subsequent revenues. Through this partnership, Freedom will provide qualifying municipal clients with rebates of $0.005 per kilowatt hour utilized in the net metering program, providing significant annual revenues to help offset their energy costs. This partnership is poised to benefit Freedom clients and hydro generators alike, allowing existing hydro facilities to significantly increase their revenues and continue to inject clean renewable energy into the New Hampshire electric grid.
A requirement for NH utilities to file POR program proposals was tucked inside the recent statutory changes to advance CCA. Stakeholders and CCA enthusiasts eagerly await these filings, fully understanding that any delay in establishing POR programs will only serve to stall many communities from finally launching the first CCA programs in the state.
Community Choice Aggregation: An Alternative Option to Purchasing Electricity from the Local Utility
By Stuart Ormsbee
VP, Power Supply Strategies
Colonial Power Group
We’re seeing it firsthand—a growing enthusiasm for community choice aggregation (CCA) amongst municipal officials and resident volunteers. Several New Hampshire communities have been at the forefront, working to advance this opportunity for many years. In short, CCA Programs provide an alternative option to the long-standing convention of purchasing electricity from your local utility company (Eversource, Liberty, Unitil or the NH Coop). Bolstered by statutory changes ratified over the summer 2021, towns and cities can work individually or collaboratively to create a community buying pool for its residents and small businesses. An increasing number of municipal committees are taking a serious look.
Several important benefits from CCA grab the headlines – moving decision making to the local level, saving money, stabilizing prices, advancing local objectives to support clean energy, and creating options that didn’t exist before. Before we allow ourselves to get swept up by the headlines, we have a few foundational items still to complete. One such item is credit insurance. But wait! Before you turn away with a yawn, let me explain how a dull topic is critical to the success of CCA in New Hampshire.
By law, a CCA program must make its offerings available to all eligible electricity consumers within its geographic territory and all such consumers must be treated equitably. Also understand that a CCA program will be most effective if it can attract interest from several prospective electricity suppliers, all competing aggressively on price and service offerings. Within any community there is always some portion of residents and businesses who have difficulty paying their electricity bills in a timely manner. This introduces a challenge, because the CCA program will require that any prospective supplier must serve all comers, regardless of the risk of customer non-payment. Suppliers’ perceived collections risk could be enough to prevent many suppliers from even bidding to serve CCA programs.
What is a Community Choice Aggregation Program?
- A CCA Program is an optional buying group organized by a municipality or group of municipalities to benefit electric customers
- The Program enters into an electricity supply contract for all residential and business customers currently receiving utility default service within a given municipality.
- Customers are automatically enrolled, unless they opt-out.
Colonial Power Group and Freedom Energy Logistics are working together to bring Community Choice Aggregation to Municipalities in NH and beyond. The advisories are optimizing energy solutions for local communities — felpower.com/colonial-power-group-and-freedom-energy-logistics-partner.
About Colonial Power Group: CPG has been assisting communities in the design, imple mentation, and management of municipal aggregations since 2002. It is currently the largest provider of municipal aggregation services in Massachusetts, successfully perform ing these services for more than 80 communities. Its sole focus is community-based municipal aggregation, devoting its full time and attention to the needs of its client communities and the end users of electricity who live and do business there. CPG works closely with its clients to formulate buying and hedging strategies to meet any specific strategic objectives such as renewable energy content and price stability. It provides unparalleled expertise in utility tariffs, ISO tariffs, pricing schedules, and has the experience to design and manage purchasing strategies that successfully deliver both economy and risk mitigation.
For more information, visit colonialpowergroup.com.
Freedom Energy Logistics Expands with New Office Space in Massachusetts
By Kurt Chapman
Chief Operating Officer
Freedom Energy held a ribbon-cutting event on December 1, 2021, to celebrate the opening of our new office in the Boston MetroWest town of Westborough, MA. The further expansion of our energy advisory services in the northeast region has precipitated the opening of the additional office and will support Freedom Energy’s rapid growth and leverage the area’s diverse talent pool for additional expansion.
While the decision to commit to new office space remains uncertain for many businesses, and in fact many have scaled back their office space with more remote operations during the ongoing pandemic, the success of our Municipal Group throughout the northeast, our immediate hiring plans, and embracing a hybrid work environment, made this an easy and necessary decision. Westborough is conveniently located for attracting professional and university talent from both the Boston and Worcester markets and the location supports our growth plans throughout the region. The facility at 200 Friberg provides ample space for our current and future staffing plans, as well as offering a training facility and space for client events. We look forward to opening additional offices soon.
With Freedom Energy’s corporate headquarters in Auburn, NH, the Westborough space supports the company’s expansion particularly for its specialized Municipal Business Unit. It allows Freedom’s Energy Advisors to better serve clients locally in MA and CT, while delivering best in class service and collaborating with partners.
Freedom currently serves more than 50 communities throughout the northeast and recently announced a strategic partnership with Colonial Power Group (CPG) designed to deliver tremendous value to municipal clients and local communities including Community Choice Aggregation (CCA) services. CPG serves 80 CCA clients in Massachusetts. Together, our advisories offer comprehensive energy services including energy procurement, demand management, and renewables in support of each city and town’s unique energy requirements and sustainability objectives.
In addition, as the group net metering administrator for four of Central Rivers Power’s hydro assets interconnected in New Hampshire, Freedom Energy is responsible for administration and subscription of the Central Rivers Power net metering group. Under the recently approved HB315 in NH, municipalities in the state of NH have a tremendous opportunity to take advantage of these renewable resources.
Freedom Energy Strategized with Municipal Administrators about their Energy Options and Sustainability Objectives at the MFAA Fall Event in Hyannis, MA
By Carol Anne Watts
Director of Energy Sales
On November 16th, Freedom Energy Logistics attended the MFAA Fall 2021 Conference/Expo. For those unfamiliar with the organization, the MFAA is the Massachusetts Facilities Administrators Association, and their mission is “the development of closer professional relationships, exchanges, and understandings among those concerned with the care, operation, and maintenance of municipal buildings and grounds.1”
The 3-day event was filled with seminars and expos for municipal attendees to learn about the latest products and services being used by their colleagues across the Commonwealth. This year there were four tracks attendees could participate in that included sessions on procurement, leadership, maintenance, energy, and (not surprisingly) even one on COVID-19.
Brian White, Municipal Program Director at Freedom Energy, was also in attendance and noted, “School administrators and facility directors have faced one of the most challenging years in history trying to navigate what was best for students and faculty during the pandemic. In a seemingly unfair turn of events, they are now faced with difficult decisions regarding energy and budgets.”
The current energy crisis has left many shaking their heads and looking for answers. The common theme of our discussions with attendees was how can Freedom Energy help them reduce costs in a rising market. Luckily, we have a few renewable offerings in Massachusetts that do offset costs (up to 10% of the total utility bill) and can strategize on a plan that may take each entity’s unique profile into account. We look forward to continuing our conversations with those we met at MFAA 2021 and seeing everyone again in 2022.
Impact of Escalation Underpricing Agreements
By Brian White
Municipal Program Director
After an extremely abnormal 2020 for everyone, 2021 brought about a resurgence of excitement, a feeling of hope and happiness as we prepared to get back to living life as close to pre-pandemic as possible. The re-opening has been a slow crawl back to normalcy for most and that included energy rates – until May 2021 when forward electric and gas markets surged.
For some energy suppliers who did not hedge properly, this meant the termination of fixed price contracts for their clients. You read that right, if your business, City, or Town partnered with one of these suppliers, your accounts were dropped from service and placed back on the utility right as prices started going through the roof. Now faced with the impossible task of finding a new supplier at a tolerable rate, budgets were in jeopardy and stress levels increased.
We talk a lot about the lowest offer on paper not always being the best option for clients. Terms and conditions are equally as important along with the financial strength of the suppliers you choose to work with.
Utility rates are the highest they’ve ever been, inflation is happening across every industry, but those who took advantage of the market prior to the spike and entered an agreement with the right terms and conditions, are swimming through a pool of savings and have positioned the business, City, or Town in fantastic shape.
We do not have a crystal ball, but we do have a lengthy history of energy rate fluctuation and market drivers to look back on and make recommendations about future opportunities. So many of our clients are taking advantage of current trading for years 2023 and beyond, right now!
The graphs on the following page illustrate energy forwards for 2022-2024 and for some, waiting for 2023 and beyond to start looking more like 2022 was not an option.
Contact us and see what’s available today – you can view executable offers without a commitment and worst-case scenario, you’ll have an idea of what the next agreement will look like, even if it doesn’t begin for another year or two.
Freedom Energy’s Channel Partner Program
By Loren Stacey
Channel Program Director
We cherish our relationships with all our clients whether you work directly with Freedom Energy or are clients through our Channel Partner network.
At Freedom, we work with many different types of Channel Partners, each with their own reason for partnering with us. Some of our partners work within the energy industry but their primary focus isn’t procurement. For them, working with Freedom Energy provides an opportunity to add commodity to their book of business without a heavy lift, and it extends their offerings adding value for their clients. For example, some Solar, LED Lighting, and other efficiency businesses are already working with clients and have the bills and other information necessary to obtain pricing. By working with Freedom, our Partner can simply ask their clients if they would like quotes for their energy supply in addition to their other services, and as a result, the Channel Partner can provide additional benefit for their client and add another revenue stream for their own business.
Freedom also has Referral Partners that typically work outside of the energy industry. They know and work with a wide variety of business owners, and recommend working with Freedom. Referral partners literally just make an introduction either by phone or email, and Freedom works with the client to identify their energy requirements and best solutions. Introductions can be difficult, so leveraging this type of opportunity to bring value to other businesses while adding another stream of income for their own business is a win-win. Clients are referred and Freedom works with them to build a solid relationship and identify the client’s best energy options.
Lastly, Freedom also works with Independent Energy Consultants. They are energy industry professionals and manage a book of business. Typically, they work with Freedom to leverage our relationships with the suppliers, and utilize our vetted contract language, Freedom’s sales support, marketing materials, back office, and more.
We value all our relationships at Freedom Energy and make it as easy as possible for our Channel Partners to work with us. Ultimately, it’s all about providing best in class solutions and delivering the highest of client satisfaction and service.
Freedom is looking to add more Channel Partners to our network.
We have been in the industry since 2006 and have established relationships with all the top suppliers nationwide. The company is licensed in each of the deregulated markets throughout the US and has a team working to keep all those licenses current. We have a sales support group available to assist with pricing/contracting. Our marketing team can work can provide customized marketing materials. Our business development team will reach out to clients on your behalf to request documents, help with renewals, etc. In addition, our Renewable Energy Manager has vetted all our Energy Efficiency partners so you can readily work with Community Solar, Solar, LED, Lighting, EV Charging and more to provide additional services to support clients.
If you know of someone who might be interested in joining Freedom as a Channel Partner, please visit felpower.com/about/channel-partner.
CLIENT SPOTLIGHT: David Ruggiero, Energy Manager, Norwood, Sharon and Walpole, Massachusetts
As the Energy Manager for three MA towns, a position conceived through the Green Communities Program, David Ruggiero oversees the comprehensive energy needs and sustainability requirements for each of the three communities. His role is instrumental in setting each community’s unique energy path forward including conservation and efficiency measures, energy transformation, resiliency, renewables, emissions reduction and sustainability initiatives.
For more insight into David Ruggiero’s role and the energy initiatives underway in Norwood, Sharon and Walpole, check out the 5-minute video posted on Freedom’s website felpower.com/resource-center/videos or clicking on the image below.