Energy markets sustain our economies and our daily lives. Every company and every household needs energy. Energy markets are regulated in many parts of the world. Energy suppliers enjoy a monopoly and tariffs are set by the government. However, there is a strong drive towards liberalization. In an open energy market, the laws of supply and demand determine the price of energy. Understanding how they work is necessary if you want to be a successful energy buyer and become an “energy entrepreneur”.
Deregulation isn’t the only transformative force changing the energy markets landscape. The current renewable energy revolution is reshaping the entire industry. At the same time, new production techniques such as fracking have made more natural gas and oil available to the markets. On top of this, growth of LNG and its exportation abroad on tankers in the form of super-cooled natural gas is globalizing the gas markets. Do you have a solid understanding of how these changes affect your business?
You can read several articles a day on energy in the newspapers and specialized press. But as a busy professional, you don’t have time to read them all. And even if you do, you need someone to exchange ideas and opinions with and help you digest all that information. Moreover, it is difficult to find an unbiased perspective when dealing with commodities that drives costs for businesses and consumers alike. Are you confident that the market information you received is both objective and responsive to your interests and concerns as an energy consumer?
Analyzing global energy markets is crucial to understanding the fluctuation of local energy prices. Most market observers are used to looking at the Middle-East, Venezuela or China to understand what’s driving the price of oil. But the analysis of natural gas or electricity markets often lacks this global perspective. The increase in LNG trading has caused gas prices to converge. If you want to know what is driving your gas price, you’ll have to look beyond your local market.
Due to a lack of interconnection and the absence of shared energy generation across borders, electricity markets are more local in nature. Nevertheless, as the pricing is largely driven by combustibles that are traded around the world, a global perspective can provide deeper insight into supply and demand fundamentals. Moreover, looking at a phenomenon like the renewable energy revolution from a global perspective can shed light on important developments in your country.
More and more countries are deregulating their energy markets. Drawing lessons from countries that have already gone through the process can help you make the right decisions in this transition phase.
European energy markets are driven by strong transformative processes:
Over the course of the past few years, the shale gas revolution has driven US energy markets to historical lows. Within this broader, bearish trend, volatility remains high. The month ahead Henry Hub wholesale natural gas price was almost three times as high in March 2014 compared to March 2016.
However, if you are buying energy in the US, you have to look beyond the Henry Hub pricing. What you pay for your gas is also determined by basis pricing, or the cost of transporting gas via pipelines to your location. If you are in a deregulated state, you can decide whether to leave the Henry Hub and/or basis pricing open for spot pricing, or fix it up-front. US electricity markets are also very local in nature. In states with electricity deregulation, you can find a wide variety of spot prices and forward markets that you can use to fix pricing.
Buying energy in the US energy markets in a successful manner requires first and foremost that you gain insight into the wholesale markets that are driving your pricing and start monitoring these price levels. Broad trends such as the increase in natural gas production, the crackdown or support of coal-fired power plants, and the growth renewables in States like Texas, Massachusetts or California all influence your pricing. At the same time, local phenomena such as pipeline or powerline congestion determine what price you pay. Are you aware of these market factors? Are you monitoring your price drivers? Or are you just taking prices as they pass you by?
Across the globe, whole armies of ambitious analysts and journalists are tracking the energy markets’ every move. They produce a massive amount of information which spreads around the world in a matter of seconds. What you read in the popular press is often overly simplistic, outdated and too focused on geopolitics. On the other hand, the specialized press often bogs itself down in details and misses the broader picture. Its analysis is also usually directed at the energy industry rather than end consumers, causing a lack of focus or even bias. A sound analysis of the global supply and demand trends that really drive pricing is often missing. E&C is filling that gap through its market intelligence.
E&C’s intelligence on energy markets is different from what you can find elsewhere because:
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As a busy procurement professional you might not have time to browse through all relevant energy articles and find the relevant information. E&C selects and curates this information for you. As an energy market specialist that is extremely well-read, E&C is your ideal sparring partner for talking about what really matters in terms of price development.
Australia might become largest LNG exporter.
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Carbon tax may increase to 150 euro/ton in 2030.
by author Joke Bruneel
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by author Relinde Van Loo
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Our offices in Europe and the US serve more than 300 clients from South-Africa to Norway and Peru to Australia that have an annual spend between 1.5 million and 1.5 billion dollar.
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