Over the last 3 years, the discovery and development of the Marcellus shale natural gas reserves in Northern and Western PA has resulted in a huge increase in gas supplies in the Mid-Atlantic States.
Normally, gas prices consist of the hourly or daily charge for the commodity itself (published by NYMEX) and the “basis” charge – including transportation and supplier profit margins – which is added to the NYMEX.
Our electronics customer’s previous gas supply contract was priced at the NYMEX wholesale price plus 20 cents per decatherm, but because of the flood of shale gas, his existing supplier offered ‘an amazing deal’ for his next contract – negative 50 cents to be deducted from the NYMEX price.
Retail gas suppliers could offer these substantial ‘discounts’ because the producers were having a problem storing all the gas they were producing, while power generators using gas as fuel were generating less power due to the cool 2013 Summer reducing air-conditioning loads.
This ‘amazing price’ represented about 21% less than his current contract, so our customer didn’t think it was worth holding an auction, but because there was no cost or downside to doing so, he agreed to hold an auction.
We generated a price of negative 66 cents, for a total savings of 25% (an incremental 4 percentage points). In total, the Client saved $70,000 per year. Our customer said…
You are to be commended. I must confess I had my doubts because of the crazy negative basis points and the Marcellus Gas developments but you’ve done it again. Thank you from all us in PA for a job well done!”