Procurement, Past Present and Future

Mary Rossiter

Mary Rossiter

Marketing & Communications Manager
13/04/2018

This July marks the author’s 11th year in the energy industry. Throughout the last 11 years to say that there has been change in the Irish, European & Global energy markets is an understatement. However, one thing has remained the same: the need to have a procurement strategy in place, complimented by the ability and tools to make pro-active, informed decisions is critical to the success of any energy consuming business.

11 years ago, as I stumbled my way through my learning curve (stabilisers and all!) I can still remember our MD at the time saying “fear winter, protect your business from its volatility” and him likening businesses who choose to ignore winter and leave themselves exposed to that season’s volatility to someone going to Las Vegas with their businesses energy budget and putting it all on red.

With the last 2 – 3 months in mind, luck isn’t enough; there’s no escaping the need to understand the past and analyse the present in order to protect yourself from (and maybe even predict) the future!

There’s an ongoing open question between Naturgy and our Customers…”Never mind the new products…where’s the crystal ball?” I’ve heard this one a thousand times, but I can now answer it; “It’s right here, it’s always been here, the crystal ball is knowledge”.

Using knowledge as our crystal ball, as our means to look back at the past and try predict the future, let’s take a look at energy, specifically winter energy costs and see if we can create a strategy!

The Past:

Winter (& Q1 in any calendar year) have always been the most expensive, volatile times for any end-user. Not only are gas commodity costs usually higher, but should you breach your peak consumption from the prior year, the penalty rates during the winter months are excessive. The past has also taught us that any unexpected event during the winter months can have an adverse impact on prices. In the last few years we can see a clear correlation between energy prices and the following;

  • unplanned maintenance
  • outages
  • geo-political issues
  • cold weather

The Present:

So far, 2018 has been an eventful year in terms of energy. We’ve seen record snowfall, geo-political tensions emanating across the Atlantic, as well as tensions between UK & Russia (and most of Europe!) In addition to this, 2018 is the first full year of long-term storage-free UK. With the UK in mind, there’s the fairly big issue of BREXIT and the potential affects this will have on gas prices in Ireland. Remember, we’re at the end of a really long pipe that passes through the UK and into Ireland carrying gas from Europe and further afield; what happens once the UK leaves the EU, will this gas be subject to a tariff or tighter controls?

 

This issue was raised recently in the UK Parliament. Prime Minister Theresa May was put under pressure when, in the absence of storage supplies, it was noted that, for 2018, the UK was buying LNG from Russia and, in light of current tensions, should the UK be creating a market for Russia. During this debate, it also arose that in 2017, circa 37% of European gas demand was met by Russia. However, when we look at direct UK imports, Norway is still king, providing the UK (& Ireland) with the vast majority of its natural gas. That said, Russia plays a major part, specifically across wider Europe and can still have an influence, for better or worse.

The Future: (Pay attention, because here’s your crystal ball!)

If you want to predict the future outcome of energy prices and their impact on your business, as well as the best time to buy to some level of accuracy, you need to follow a simple formula: [The Past (learnings) + The Present (facts)] * Informed Decision = TIME TO BUY!

So, to wrap this up and to allow you to play with your new crystal ball…what does all of this mean, what are your next steps and actions?

Next Steps:

It’s really simple;

  • learn from the past
  • acknowledge that history can repeat itself
  • absorb as much knowledge as you can about today’s energy market

Use all this to identify the bullish & bearish signals within the market. For the first time ever, be a little bit cautious about summer, and as always be prepared for winter (& Q1 in any calendar year).

Talk to your supplier about energy, not just in the short-term, but across multi-year horizons and ensure that you have procured a significant portion of your winter / Q1 requirements well before the summer ends.