In a market environment where the only certainty is that there is none, natural gas wholesale buying requires a philosophy that is constantly reviewed and reiterated to organizational leaders, said Val Trinkley, general manager of EnergyUSA, speaking at GasMart 2008 in Chicago Thursday. The energy marketer with NiSource conducted a workshop on "Natural Gas Risk Management -- Developing a Strategy."
Whatever the approach or "philosophy" adopted for buying gas, stick to it, Trinkley said. That goes for both aggressive and conservative buyers, he said. Buyers can be sure that volatility and demand in the gas markets are going to stay high, and the hedge funds -- like it or not -- are going to add to the volatility.
Warning that second-guessing within organizations is always rampant, Trinkley encouraged everyone to keep close track of what they do, why they do it, and when they did it. He emphasized that the market has changed dramatically just in the last year when it is considered 12 months ago oil was selling for $62/bbl and now it's more than $130/bbl.
"Hope is not a strategy," Trinkley said. "We might hope for $7-8 gas, but reality shows we are going to be paying $9-10."
"The hedge funds are going to be hedging whether we like it or not. They are increasing volatility in the marketplace. I like the funds being involved for the liquidity they can create, but I also don't like them because of the volatility they create."
Trinkley advocates an elaborate, disciplined and broadly communicated approach to buying that ties it from the organization's bottom line to the external players such as producers and local distribution utilities. It is a road map for managing energy risk, targeting pricing goals and understanding and monitoring what he called the key price drivers (supply/demand, weather, interstate pipeline capacity and storage levels).
He outlined a set of "things to watch" that are divided among bullish factors, such as storage, weather, dollars shifting from equities to commodities and the weaker U.S. dollar affecting liquefied natural gas imports, to bearish issues, such as a weakening domestic economy and continued strong gas production. Along with solid approaches to analyzing and acting on pricing and buying data, Trinkley advocates an elaborate action plan, one that is checked often and communicated widely within the organization.
He said this summer he looks for a market correction to the low $10 to mid-$9 range.
"As always, if it meets or beats your budget, buy it," Trinkley said. "And don't look back. Success does not equal 'beating the market' per se, but more like beating in-house budgets, tariffs and getting high-quality vendor service."
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