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April 16th, 2012

Understanding Energy Markets in a Time of Change

by Jon Sorenson, President and COO

The energy market impacts the life of every American.  For the most part, the back end of this complicated, economically-driven system is invisible to most.  They experience the energy markets as the price per gallon at the gas pump, the monthly electricity bill or the cost of a delivery of heating oil.  While some may consider the things which immediately impact the price of each of those energy sources, they are unlikely to fully appreciate the complexities that drive prices.

Here at CES, we’re thinking about them all day, every day.

The American and global energy markets are in the midst of a period of great change.  Ten years ago, the energy outlook was very different than it is today.  Gasoline prices have fluctuated over the last decade, but not risen as sharply as may have been expected prior to the recent recession.  Natural gas has remained a competitively-priced commodity relative to petroleum and presents an affordable energy source for many consumers.  Neither of these would have been easy to predict in 2002.

These things are in large part based on supply.  We are in the midst of a natural gas revolution in the United States, and the industry has discovered reservoirs of natural gas in our own country that will provide energy for years to come.  Where LNG terminals were being constructed to take delivery a decade ago, they are now being converted to facilitate export of American natural gas.  In addition to this, last year the United States became a net exporter of petroleum.

A cautionary note: Don’t rely on this new supply to lower energy costs.  In the midst of all of this change in the American energy profile, the world markets are also rapidly changing.  New consumers are coming online throughout the developing world in countries like China and Brazil.  At the present time, the oil markets are global markets – our prices here are affected by events around the world.  To learn more, take a look at my explanation of these issues in an NECN interview http://competitive-energy.com/news/changing-oil-markets-ces-on-necn.

Every day we drill down into these themes at CES and fully consider the implications of new developments in the United States and throughout the world.  Particularly for large consumers, a big part of being an informed energy consumer is understanding the forces at work on energy prices.  For our clients, we are pleased to serve as the source for that information and better understand what’s going on behind the price at the pump, the pipe or the meter.

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