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Posts Tagged ‘energy consulting’

2 Mar 25 2010 @ 9:50am by Matt Smith in Biofuels, Capital Markets, Crude Oil, energy consulting, Global Energy, Natural Gas, risk management, Risk Strategy

Ten reasons why energy commodities absolutely rock

My name is Matt Smith and I am a financial market junkie. Having left London and the warm bosom of investment management some 1,312 days ago, all could have gone very wrong. However, I have fallen into the arms of another – the world of energy commodities. So henceforth, my reasons for their stardom is tenfold:

1. Markets are all interlinked. Although some energy commodities may spend some time way out in left field, led by their own own fundamentals (step up to the plate, US natural gas), energy commodities take their lead at various times from other commodities, or other asset classes. So the more you know about general markets, the more you can apply that knowledge to the movement in specific commodities.

2. The word fungible. Commodities have fungibility, which means their units can be substituted for another – they are interchangeable, like a dime. Hence why a pipeline attack in Nigeria or geopolitical tension in the Middle East  matters to the price of your gas at the local gas station. It is also a fantastic word.

3. How commodities latch onto other commodities at various times. For example, European power markets pick and choose which price driver to follow, seemingly like picking a jelly belly from a bag (exaggeration for embellishment). At various times, power is led by coal, natural gas, oil or carbon permits, or varying combinations of these four. It keeps you on your toes.

  1. 4. The global reach of commodities. Trying to get your head around a domestic commodity like US natural gas is hard enough, let alone trying to determine how rampant Chinese oil demand weighs in with weak US oil refinery margins to influence UK Brent crude pricing. It surely can never be wholly mastered, but it sure is fun trying to decipher all these contrasting factors, from Corpus Christi to China, via Chiswell Street.
  2. 5. While leading participants in other markets try to hide their misdemeanors through a charade of smoke and mirrors (step up, Lehman Brothers and your Repo 105’s), the largest and most influential participant in the crude complex (Opec) continue to defy their own mandates (official quotas), while fully aware they will be called out on such dissention on a monthly basis. Refreshing.

6. How can you tire of a commodity such as US natural gas, when despite having all the sophisticated financial modeling and valuation tools in the world, prices remain at the mercy of the gods with hurricanes, heat, storms, and snow?

7. Technological advancement. Energy markets are constantly evolving through technological breakthroughs, and this will only continue through developments in such areas as LNG, smart grids, biofuels and green energy.

8. Forward curves. Not only do you have the ability to analyze commodities on the cash market or the front month contract, but you get to analyze the movements of the whole forward curve, going out for years to come. They are like a 3-D version of equities. And the forward curve is just as important as the prompt (or more) to energy risk management.

9. How markets in completely different geographical areas influence each other. Case in point, UK and US prompt natural gas prices have recently converged, due to their increased competition for LNG supplies. Fungibility + transportation links = an ever shrinking world.

10. Commodity markets are like equity markets are like bond markets are like currency markets. No matter how much you analyze a market, you will never master it. But we keep trying our darndest. And that’s why they rock.

2 Jan 28 2010 @ 10:15am by Matt Smith in energy consulting

Five and a half facts and four and a half fallacies to lower your company’s energy costs.

Here are ten simple ways for an industrial company to lower their energy costs:

1) Energy demand management: reduce your energy bills, but not your energy consumption. By being smarter about when you use energy (i.e. moving energy usage to off-peak times), you can potentially create huge savings.

2) Having twenty employees rubbing their feet on the carpet for one hour to create static can increase the temperature in an average-sized boardroom by 1.5 degrees.

3) Be nice to your boiler. Government regulations require boilers to be inspected each year, but inspection does not mean calibration. Going the extra step and calibrating your boiler can save thousands.

4) Install highly sensitive motion sensors in breakrooms, restrooms, corridors and stairwells. Not only will this conserve energy, it will also keep employees warm due to having to wave their arms around like a crazy person. (A nice little side benefit – turn all thermostats down by 2.5 degrees).

5) Understand your energy charges. If you receive service through your utility, make sure you are being charged the correct tariff rate. If you receive service from a third party supplier, attempt to negotiate a lower rate.

6) Purchase Energy Star products where possible. A collection of three or more Energy Star products means you can apply for an additional bonus tax rebate called the Energy Constellation Cashback Rebate.

7) For a plant / factory, buy electrical-driven machinery rather than compressed air-driven. Cut down on compressed air usage wherever possible. The misconception with compressed air is that it is free (the air is free, compression is not). In effect, 92% of the energy used to power compressed air machinery is lost through transmission. The moral of the story – go for electrical-driven machinery.

8) If you lower your thermostat by one degree a week starting on October 1, employees gradually acclimatize to an ever-dropping temperature. By January 1, their movement may be restricted due to too many layers, at which point you crank up the heat again. By one degree a week. Estimated savings on a 3000 square foot building: $1359. ($59 for the Christmas party kitty, $1,300 to the bottom line).

9) Have your plant undergo an energy audit or a consumption workshop (where your team can be taught how to assess their own energy audit).

10) Adjust the brightness on your monitors lower by 80%. Not only will this save energy, but the darker tone will place less stress on your eyes, which means less vision insurance claims for your company (approximated savings of $843 per 100 employees).  

0 Dec 10 2009 @ 9:45am by Matt Smith in Crude Oil, Global Energy, Natural Gas, Risk Strategy, UK natural gas

On the twelfth day of Christmas….

On the twelfth day of Christmas,
Summit Energy gave to me –

dashboarDView

Twelve CarbonMaps™,

Eleven consumption workshops,

Ten special market updates,

Nine budget projections,

Eight thousand bill validations,

Seven rates analyses,

Six hedging strategies,

Five new site rollouts,

Four renewable energy portfolio optimizations,

Three French RFPs,

Two Summitized contracts,

And a password and access to DV*!

 


 

In addition to the above ditty, please see below our efforts to keep in Santa’s good books. This year we must be odds on favorites for good presents as we have helped him go green. Click on the image below to see us making sure we don’t get coal the fruits of our labor:

Santa's Energy
*DV is DashboarDView, Summit Energy’s online sustainability and energy reporting platform.
2 Oct 27 2009 @ 4:15pm by Matt Smith in Risk Strategy

Clichés that apply to energy risk management

A stitch in time saves nine – we dive straight in with a classic cliché, and perfect energy consulting risk management lingo: a good hedging strategy ultimately protects. Saving stitches is what it’s all about.

Getting all your ducks in a row – whether you are hedging or simply managing your energy usage, data collection and verification are key. Having correct data is the first step to implementing any type of strategy – from bill verification to budgeting or risk management.

Don’t put all your eggs in one basket – a good risk strategy involves layering in, not jumping into a market 100%. You never know what is going to happen in the future, although identifying and mitigating some of that risk is vital. It is also against cliché law to count your eggs before they are hatched.

Diff'rent strokes

Diff'rent Strokes

odd

Diff'rent Folks

Different strokes for different folks – admittedly this may immediately make you think of Gary Coleman, but is nevertheless a key point in energy consulting. Defining a client’s risk tolerance is the first step to risk management. Understanding a client’s risk capacity and financial adequacy to take on market risk is vital. Without establishing a risk strategy, you do not know whether your client’s goals are to beat their budget or beat the market – two very different things.

Closing the barn door after the horse has bolted is a classic occurrence when clients ignore advice and believe they know better. While we never profess to be able to call the bottom of the market, if we recommend taking coverage and you don’t, please do not complain when prices run higher. Of course we won’t say ‘we told you so’, but please be aware that our inner voices are screaming it in our heads.

Every dog has its day – yes it does. Complacency is a terrible thing. What’s it good for? Absolutely nothing. Even the most beaten-down commodity has its price level at which to entice bargain hunters. We will try to stop you falling prey to one of the oldest tricks in the book. Say it again.

A bird in the hand is worth two in the bush – once again, perfect risk management lingo. Hedging out some of your uncertainty at a price you are comfortable with should leave you feeling safe and cozy and free to focus on value-adding pursuits for your firm. It’s all about having birds in a hand to save stitching nine of them (or something like that).

You can pick your friends, you can pick your nose, but you can’t pick your friend’s nose – am still trying to work the angle of this one for energy consulting.  But take heed, it is wonderful advice nonetheless.