NGI Reports Utility Hedging Against Gas Price Volatility Remains Essential, PG&E Fuel Manager Says.DULLES, Va. -- Although they won't stay that way, natural gas prices have been relatively low in recent weeks in Northern California Northern California, sometimes referred to as NorCal, is the northern portion of the U.S. state of California. The region contains the San Francisco Bay Area, the state capital, Sacramento; as well as the substantial natural beauty of the redwood forests, the northern -- in the $6/MMBtu area -- because the region has been over-saturated with rain, causing Pacific Gas and Electric Co. to call on more hydroelectric supplies and use less gas, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Peter Koszalka, PG&E's utility manager of electric fuels. "We'd like natural gas prices to stay at this level, but there is no assurance that they will," Koszalka told NGI (Next Generation Internet) A project of the U.S. government for researching high-speed network technologies for use by federal agencies. See Internet2. in a preview of a presentation he plans to give at GasMart on May 3. Koszalka will be one of several panelists addressing natural gas price risk, speculation and market liquidity at GasMart 2006 in Denver May 3-5 (see http://gasmart.com/). He predicts that gas prices won't dip below $5/MMBtu for some time. "I don't really have a view on where volatility is headed at this point," he said. "I really don't expect it to come down any, though" he added, noting that for utility power buyers and operators, such as PG&E's utility, the expectation is they will have to continue to deal with volatility as a regular part of the business, placing increasing importance on their hedging programs. "That is part of our strategy -- we use swaps and options -- and part of the swaps are futures, so we're active traders Traders Individuals who take positions in securities and their derivatives with the objective of making profits. Traders can make markets by trading the flow. When they do this, their objective is to earn the bid/ask spread. in the futures market futures market, a commodity exchange where contracts for the future delivery of grain, livestock, and precious metals are bought and sold. Speculation in futures serves to protect both the developers and the users of the commodities from unfavorable and unpredictable ," Koszalka said. "We have been for several years." He doesn't expect that to change. He said PG&E is trading more through IntercontinentalExchange's online over-the-counter market over-the-counter market Trading in stocks and bonds that does not take place on stock exchanges. Such trading occurs most often in the U.S., where requirements for listing stocks on the exchanges are strict. than it had in the past. "On the financial side, you see a lot more electric power trading there (ICE) than you do on the Nymex," he said. The part of PG&E's fuel-buying strategies that is critical, Koszalka said, relates to the basis price swings between the California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). border and Henry Hub Henry Hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX). It is a point on the natural gas pipeline system in Erath, Louisiana. It is owned by Sabine Pipe Line LLC. . Those basis differences can swing more wildly than in other areas of the country. Lately, however, the Henry Hub and California border prices have been closer in balance, offsetting one another from a hedging standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the , he said. "We can hedge all we want on the Nymex, but if we ignore the basis spread, we would get clobbered." When Henry Hub and California border prices tend to offset one another, that's all right with Koszalka because PG&E would like its hedges not to pay off, he said. "If you're gaining on your hedges, you have offsetting losses on the physical side, so you have to look at the whole picture. "If you're not 100% hedged, our customers are better off if our hedges lose money, although that is hard for people to understand. In reality you bought some insurance, so it is analogous analogous /anal·o·gous/ (ah-nal´ah-gus) resembling or similar in some respects, as in function or appearance, but not in origin or development. a·nal·o·gous adj. to being better off if your house doesn't burn down and you don't collect on the policy." About GasMart GasMart is the premiere conference and trade show and a major networking event for natural gas producers, pipelines, end users, utilities and marketers. More than 25,000 have attended GasMart events since 1987. More than 500 industry representatives are expected to descend de·scend v. de·scend·ed, de·scend·ing, de·scends v.intr. 1. To move from a higher to a lower place; come or go down. 2. on Denver for GasMart this year. Check www.gasmart.com for 2006 program updates or to register. Call 800-427-5747 or email gasmart@gasmart.com. About Intelligence Press Inc. Intelligence Press Inc. is an independent publishing company and has been serving the energy industry since 1981 with leading news and price survey reports for the natural gas market in its publications: Natural Gas Intelligence, Daily Gas Price Index, Weekly Gas Price Index and Power Market Today. The publisher runs real-time news on natural gas and power market developments at http://intelligencepress.com. Additionally, Intelligence Press, commonly identified by its flagship weekly newsletter, Natural Gas Intelligence or NGI, provides historical price data and publishes natural gas infrastructure and storage maps. NGI also hosts GasMart, www.gasmart.com, now in its 20th year -- for the natural gas industry. |
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