‘Window of Opportunity’ in the gas market closing

Posted 21 May 2012 by Jonathan Gardiner

Renegotiate your gas contracts within the next 12 months or risk being tied into contracts based on higher unit costs – that’s the advice from specialist power, gas and ICT procurement specialists, Total Utilities Management Group.

Gas customers have been enjoying favourable pricing since 2009 as a result of ‘Take or Pay contracts’ in place between gas-based electricity generators and their wholesale gas suppliers.  These contracts commit energy/gas retailers to buying a certain amount of gas at a set rate, irrespective of the amount sold on.  This has periodically resulted in retailers looking for a good home for their excess gas – with near wholesale prices being offered to some retail customers as a consequence.  But be aware, these ‘Take or Pay’ contracts are due to expire within the next 12 months as we understand it.

Prior to 2009 the trend of rising gas prices caused an increase in the size of the recoverable reserves in the Maui Gas Field.  This also had a dampening effect on the market rate – all good news for consumers.  However, the pockets of gas from Maui are now becoming less reliable – the first reserves extracted were graded P85 (85% probability of successful extraction) but we’re now moving towards P50 reserves (50% probability) and this leads to increased retailer uncertainty which means that more risk, and therefore more cost, is built into customer contracts.

These two trends add up to a strong indication that the clock is ticking for this period of low natural gas pricing.  Unless something significant changes, we believe that the current period of low pricing will last for less than 12 months.  TUMG is currently bringing forward our client’s major natural gas negotiations so that we can lock in the low pricing for the next three years.

Our most recent bulk gas tender, completed in March this year covered a diverse range of customers, large and small, and achieved savings averaging $53,900 per customer over a three-year period for 19 of the 22 customers.  Five customers cut their gas costs by between 22% and 36%.  If you’d like advice or support in any utilities contract negotiation, just give us a call on 09 576 2107 or email

 

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