Just a quick newsletter this week. We’re looking over the implications of the new stimulus package, particularly in terms of green energy and energy efficiency. We like some of the things we see, and will be reporting on it in the weeks to come.

Check the NYMEX

This week, for a change of pace, we’ll feature some thoughts from one of our consultants, Larry Kauf.

Ever since July 08, when the NYMEX started its tumble from a high of almost $15,00, you’ve been hearing traders talking about a “support” level. That’s not life support they’re talking about, though some of them probably need it. It’s price support.

Support, simply put, is the market telling you it’s time to stop waiting an BUY. It’s that point where the natural gas investors, who want prices high, and the people like you who actually use the stuff, who want it low, both come to the conclusion that this is as low as it’s gonna go, so it’s time to get in.

The last few months have seen the NYMEX blow through a lot of predicted support levels. $12.00….$10.00…..$7.00. Every time they said it couldn’t go lower, it did. Every time they predicted that “support” had been hit, the support collapsed.

Here’s the problem right now: with so many support levels getting blown through, everyone is just sitting around waiting. There’s a bit of a “fool me once, shame on you, fool me twice, shame on me” feeling. Very similar to what’s going on everywhere in the economy. Banks are still too scared to lend, commercial paper is still operating at a trickle. Everyone is looking for that “sign” that it’s time to get back in the game.

Why is this a problem? Because the folks who sell gas like making money. You might have to bite the bullet when prices are high, but when the prices get low these guys pick up their marbles and go home until its time to play again. Wellers shut rigs. Production plants shut.

This has already happened. Rig counts are falling faster than the NYMEX: 15% in the past month. Plants are cutting back. Their aim isn’t to get down just to the current demand level, but to create a “shortage.” Plus, they know a few things most buyers don’t. When Nuclear Power plants go offline for maintenance in the spring, utilities have to use gas to offset the loss of generation. Hurricane season has been giving people the willies ever since Katrina.

What happens then? Price spike. Gas prices tend to go up a whole lot faster than they go down. You could say the pendulum swings back, but in this case, it’s going to be like someone gave it a big shove. And I don’t need to tell you what happens to somebody who’s sitting when a spike happens, do I?

As I have been saying, now is the time to lock. Consider the next 12 months with a close eye on prices going into April 2010.

Check the NYMEX

Week two, and we’re still trying to get that elusive NYMEX price. We discovered last week that there was a major infrastructure obstacle in our way: how to get the gas from Louisiana to your meter.

So we’ve agreed that we’ll pay the utility for delivery. They charge everyone the same rate, so that part of our price is a given. But nothing is preventing you from being your own supplier. Natural gas is an open market, and anyone can buy on an open market. Will this get you the NYMEX price?

Let’s see if you’re cut out for the job. Here are the steps you must follow:

1. Set up a line of credit to purchase NYMEX futures contracts. Not cheap, but the price of doing business.
2. Calculate your monthly usage for the next 12, 24 or 36 months. You want to make this as accurate as possible, as we’ll see later.
3. Buy your gas. Depending on your savvy, you might get the NYMEX settle. You might even beat it. And since these are futures options, you can also buy as far into the future as you want. Is now the right time to buy? Natural gas prices have gone from a high of almost $14.00 to a low of under $5.00 in the past year. Stakes are high.
4. You’ve got your NYMEX price. Take a moment to enjoy it. Because now you’ve got some decisions to make.Remember how the utility is handling delivery? That’s local delivery. Depending on your area, the utility might handle delivery within your state, within a few states, or within just a part of your state. You’ve still got to get a pipeline operator to move your gas to the local gate.Welcome to the world of basis, or pipeline transportation costs. This is going to add to your cost, and it’s also going to add a few new wrinkles to your purchasing plan.
5. Does your monthly usage round out to a multiple of 100,000 therms? Anything below a full contract volume of 100,000 therms, or 10 million cubic feet of gas, will carry a purchase premium, since part of the contract needs to be sold back as an odd lot. So you’ll either have to buy more than you need, and pay someone to store it, or pay the premium.
6. Sign your contract with the pipeline owner(s) for transportation of your gas. There might be three or four involved, depending on where you are located relative to Henry Hub. If you have bought more natural gas than you need (to avoid the premium) you will also have to consider the transportation charges to deliver it to and from storage.Your interstate pipeline contract(s) will require irrevocable lines of credit before anyone will do business with you. Again, not cheap.
7. Now comes the fun part. You’re bidding for space on the pipelines with a multitude of other customers. Pipelines operators think in terms of block of BCF…that’s billions of cubic feet of gas. If your gas totals are lower, they will tack a surcharge onto your bid. They might also require that you purchase additional capacity beyond your actual gas to make it worth their while.
8. If, rather than buying too much natural gas for the month, you buy too little, get ready to do this all over again on the spot market to make up the difference. Needless to say, buying from necessity on the spot market is not where you find the best prices.
9. Remember, the NYMEX settle is the daily average. To really get the best price, you need to be on top of the market on an hourly basis to catch the lows when they happen.
10. If, after all this, you didn’t read the market correctly, you probably don’t want to read tomorrow’s paper.

Actually, we simplified things a bit. All right, we simplified things a lot. But you get the idea. You natural gas supplier, as the song says, works hard for the money.

What this means to you. The NYMEX price only tells part of the story of what you should expect to pay for your natural gas. Our weekly report gives you a way to track how prices for both natural gas and electricity are trending. As the market is going, so go the deals that will be available to you as a consumer. Track the trend, not the actual listed price.

At Cost Containment Intl., we appreciate the hard work and expertise on the part of your supplier to get your gas to your burners. This doesn’t stop us from using our own hard work and expertise to put together the best plan and then grind down the best price for you.

The best way to get the best price is still to give us a call.

Check the NYMEX

As promised, we’re now going to answer the question people have been asking: how do I get the natural gas prices I see in the NYMEX report? Actually, it’s pretty simple, and only requires one step:

Step 1: build a pipeline from your meter to Louisiana…

Sorry. Hopefully, you saw that coming. The NYMEX price is the price for raw gas that’s being paid at one of the major gas pipeline terminuses, the Henry Hub in Erath, Louisiana. So if you are in Erath Louisiana, and you’ve got the NYMEX settle price in your pocket, what you’ll get in return is a clear, odorless cloud of gas containing 1 mmBTU…one million British Thermal Units, or roughly one thousand cubic feet…of mostly methane.

(Technically speaking, the NYMEX price is for futures contracts on the New York Mercantile Exchange, not for the gas itself. However, the spot price for gas…the price for people who are actually buying the raw gas…tends to be very close to the NYMEX rate. The NYMEX rate is considered a benchmark for gas prices in all markets in America where gas is bought and sold. There are quite a few of them. Our gas cloud is for demonstration purposes only.)

You’re now the owner of a ten foot x ten foot x ten foot cloud of gas. Assuming it hasn’t dissipated into the air yet, and assuming no one got careless with matches or sparks (the volatility of the natural gas markets are nothing compared to the volatility of your cloud!), your natural gas has to get from Henry Hub to your meter, along with enough other clouds to meet your demand for the year. This will require a few more steps: you will also need to build storage tanks, pumping and compression stations, valve stations, a command and control center…

…which is part of the reason why most people don’t get the NYMEX price. Because it makes a lot more sense to pay other people to handle the whole “from Erath to me” part. That way, you can take advantages of one of the wonders of modern engineering, the American natural gas pipeline system, which transports a highly volatile substance to virtually every point in our country safely, efficiently, quickly, and surprisingly cheaply. If you’d like to see a map of the system, take a look on our Web site.

Your natural gas bill has two components: the price you pay your provider for the gas that gets to your utility (if you haven’t chosen an alternate supplier, the utility is your provider, as well), and the price you pay the utility to deliver it to you. No matter who is providing your natural gas, the delivery costs should be about the same, because the utility charges all providers (including themselves) pretty much the same rate.

Where is that original raw gas price in your bill? That, as they say, is a very…interesting…question, and we’ll be discussing it in a future newsletter. Getting to the bottom of this is one of the ways that Cost Containment Intl. helps our customers find the savings they didn’t know they were missing.

Let’s say you’ve broken down the charges on your gas bill, and you’ve separated out the delivery costs. You’ve isolated what you are being charged for the actual gas. NOW can you get NYMEX? Only if your provider has decided to become a non-profit organization. This is the other part of the reason why you don’t get the NYMEX price. Your provider is in this business of reselling gas to make a profit. NYMEX is what they are looking to hit, or to beat. And then they sell to you.

Of course, even if you can’t build your own pipe, you could still be your own provider. Anyone can buy on the NYMEX. Is that the way to get the NYMEX price? We’ll find out next week.

Check the NYMEX